USM Open Source History Text: The World at War: World History 1914-1945

Economic Expansion in the 1920s

U.S. economic strength came with the booms in immigration and industrialization. This growth catapulted the United States into the first position in the global economy. The main effects of the war would be to reorient the entire global economic system to the advantage of the Americans. This happened in a number of important ways. The first way in which the global economy shifted after WWI was toward protectionism, which meant that nations, often new nations or ones that had recently expanded their industrial capacity for the first time, placed high tariffs on imported goods to protect domestic industry. The United States was one of the major players in this movement, raising import taxes to their highest level in 1922 with the passage of the Fordney-McCumber Tariff. This policy served to protect American industry, but overtime it hampered European redevelopment and hindered global growth. The second thing that happened was the allocation of development loans to non-industrial countries shrank while loans to the principle European belligerents in the war (Britain, France, Germany) and other developing countries spiked. The economic relationships between the countries are complex, but the point is that the end result of the shift in global finance was both a curtailment of the growth of new markets and a gradual accumulation of capital reserves in the United States by private banks and individuals. The same basic policy configuration guided the presidencies of Warren G. Harding, Calvin Coolidge, and Herbert Hoover. This accumulated capital would eventually lead to a dramatic rise in stock prices and their eventual fall back down to earth in the opening stages of what became the Great Depression.

Economic expansion, while in some ways benefiting the United States in the short run, did not happen in a manner that supported the growth of the global economy, which was becoming increasingly unequal as years passed. Fundamental weaknesses in the U.S. economy were masked by rising credit and the choking off of immigration. It was easy to get caught up in the rapidly developing consumer society of the 1920s, but as in the first decades of the 21st century, much/most of American consumption was done on the shaky ground of debt.

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