The Roaring Twenties: US Industrial Growth and Speculation

Industrial Acceleration and Economic Structure Change

The U.S. accelerated the growth of its industrial production, which was accompanied by a profound change in the economic structure. The expansion of the U.S. economy was based on a profound transformation of production dominated by:

• Technical innovation and changes in work organization.
• New energy sectors, particularly the widespread use of electricity and oil.

The most representative example of this transformation was the automobile industry, the first to apply mass production through assembly lines. All this occurred amidst a process of business concentration, resulting from strong competition driven by lowering prices.

Productivity Gains and the Consumer Revolution

The consequence of these changes was a huge increase in productivity, which enabled the U.S. economy to reduce production costs. Small specialist shops had to face competition from large chains and department stores (megastores).

Furthermore, the availability of purchase or credit terms allowed a very high proportion of families to increase their purchases. This increased demand for products and became one of the main engines of economic expansion. The drive to sell more fueled massive investment in advertising and marketing. The massive increase in consumption and the dissemination of these new trading systems led to a revolution of consumers.

Household Debt and Agricultural Struggles

Much of the population held the confidence that the future situation would be even better. While growth in consumption led to a higher proportion of rising incomes, this also led to high indebtedness of households. Agriculture, however, was the sector most affected by the prosperity of the twenties.

The Speculative Bubble and Market Psychology

Initially, the market strength was the result of the favorable situation of enterprises and their expectations for the future. But the rapid rises in prices led to a speculative bubble. This phenomenon is part of a mechanism of collective psychology:

Confidence that prices would continue to climb ensured that no investor wanted to be the last to buy. This generated great demand for securities, further increasing the market price. While the stock price maintained its rising tendency, the euphoria continued, and loans were able to be repaid, even though contributions might stop feeling related to benefits and the possible future evolution of the company.