The 1920s was one of the golden ages in American history as far as technology is concerned. For instance, the robot was invented in 1921, the late legend, John Larson invented the lie detector, Sir Fredrick Grant Banting invented insulin in 1922, the now very popular 3-D movie (the spectacles which have one green lens and one red) was first released and the traffic signal was invented by Garret A. Morgan. In addition, the television was invented by Vladimir Kosma Zworykin, frozen food was introduced by Clarence Birdseye in 1923, Rice and Kellog invented the loudspeaker in 1924 and the liquid-fueled rockets were invented in Robert H. Goddard. These are all great inventions and life would not be as it is now were they not to be invented. Nevertheless, one of the greatest inventions of what historians call the “roaring twenties” was perhaps the idea of buying goods and services on credit.
First, credit buying on the 1920s had two meanings. One, in order to purchase luxury goods like a house or a car, the bank could lend you the money. Two, ledgers were kept by the stores which offered credit facilities. This was only if the payments would be made on weekly basis. A very important point to note about buying on credit in the 1920s is that the interest rates charged then were twice what are charged now. Consequently, Americans began to borrow too much money to buy luxury goods, shop in stores and buy stocks, confident that they would pay back. As a result, the great depression happened.
Two, as American individuals borrowed money from banks to buy luxury items and invest in stocks; they thought they would repay the money back from the profits they made in the stocks. This is because they were making a lot of money before by selling goods and services; they made a lot of money. This made stock values to rise. This happened up to the time when people could no longer buy things since all their money was spent into paying off credit and servicing their loans. As a result, inflation came into the fore and the subsequently, it led to the great depression.
One of the most significant points that should be noted about 1920s is the fact hat it as a period of great economic boom in the United States. New and improved methods of production and new industries led to American prosperity. The readily available raw materials were used to produce machinery, chemicals, glass, steel and chemicals. Thus, there was a boom in in consumer goods. Despite the fact that the American economy was growing, as a paradox, it was weakening at the same time. Forty percent of the Americans were very wealthy, but the remaining sixty per cent were living below poverty. The expansion of the coal industry created thousands of jobs. However, when gas and oil was introduced, the coal industry went on the declining mode. But this was just the tip of the problem. The 1920s was marked with the huge problem of buying on credit. Being a time of great economic boom as noted, individual Americans began taking credit to buy expensive items. Installments were allowed, thus millions of people went in debt to purchase these items. Moreover, more than enough people took credit ti invest in stock markets. They were sure they would get the money back. Unfortunately, the lending institutions were unable to handle the huge number of individual borrowers. The repayments were also not coming. Restrictions on new loans were introduced. Credit became scarce. Prices lowered. Bankruptcies became common. Resultantly, values of stock plummeted, stakeholders wealth were completely wiped out; banks and factories were shut down. Consequently, the great depression occurred (Markham, 2002)
In conclusion, credit buying in 1920 was rampant. The amount people borrowed from the banks to buy luxury goods, shop and invest in the stock was too much for the American financial system to handle. Though they were under the illusion that the economy was booming, they over spent. Thus, buying on credit made the American economy to crush in the 1920s. This is what caused the great depression.
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Markham, J. W. (2002). A financial history of the United States. Armonk, N.Y: M.E. Sharpe..