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Only those who know little or nothing about economics and the very naive did not know in the year 1925 that economic hard times follow good times as economic booms and slumps are cyclical. Still, there were various reasons why even seasoned economists may have speculated that economic prosperity of the 1920s would continue forevermore. Machinery, manufacturing plants and “the process of standardized mass production” were the main reasons for the excitement of the 1920s (Schultz and Tischler).
In fact, the economy of the United States continued to grow until 1929. The First World War had encouraged industry to expand. Labor shortages coupled with the need to increase production had stimulated the development of efficient modes of production. Taylorism or scientific management to streamline processes of production in order to increase production capacity had been introduced around the country. With new machinery and management tools, worker productivity was raised. This rise in productivity increased wages, thereby increasing consumption.
Americans were also encouraged to use credit to fuel consumption at the time. The installment plan was an innovation of the 1920s. What is more, the government supported businesses by raising tariffs on foreign goods, reducing personal income tax and corporate tax, repealing taxes on profits, and looking into unfair trade practices as a means to encourage businesses to expand (Schultz and Tischler). The consumer psychology in 1925 was another reason why many may have reasoned that economic slumps are a thing of the past.
Americans had the radio at the time, in addition to a growing motion picture industry to keep their mindsets positive. They also had electric appliances at home and a growing automobile industry making them believe their lives had changed forevermore in a positive direction (Schultz and Tischler). Then again, all those who know about the economic boom bust cycle were aware in 1925 that a slump is sure to follow a boom.
Schultz, Stanley K. , and William P. Tischler. “Civil War to the Present. ” American History 102. 1999. 1 Mar 2009. <http://us. history. wisc. edu/hist