The Role of Government Policy in Shaping the 1920s Prosperity in the USA

Government policy played a crucial role in creating the prosperity of the 1920s in the USA, but its impact was not the sole determining factor. The Republican administrations under Presidents Harding, Coolidge, and Hoover implemented policies that favored a hands-off approach to the economy, known as 'laissez-faire,' which had both positive and negative consequences.

On the positive side, government policies such as low taxation, exemplified by the tax cuts between 1921 and 1925 overseen by Andrew Mellon, the Secretary of the Treasury, encouraged a consumer society and increased consumer spending. Tariffs like the Fordney–McCumber Tariff of 1922 protected American industries from cheaper foreign imports, helping domestic manufacturers thrive. Trusts in major industries, like Carnegie steel and Rockefeller oil, were allowed to flourish, leading to their success as 'captains of industry.'

Additionally, government spending on infrastructure, particularly the Federal Aid Highway Act of 1921 which invested $170 million in road building projects, stimulated economic growth and created jobs in the construction and motor car industries. These policies contributed to a significant decline in unemployment rates, averaging just 3% after 1921, further boosting consumer spending and overall prosperity.

However, there were also negative consequences of these government policies. The tariffs imposed by the Republican administrations hurt farmers' incomes and caused problems in the agricultural sector that persisted into the 1930s. Farmers received little government assistance, leading to a decline in agricultural prices. The laissez-faire approach also failed to address issues of wage disparity, particularly in older industries like coal and textiles, widening the wage gap in the country.

Despite the significant impact of government policies, other factors also played a crucial role in the prosperity of the 1920s. Innovations like electricity, Bakelite, and rayon spurred economic growth and technological advancements. The abundance of natural resources in the USA reduced the reliance on foreign imports for economic growth. US dominance in world trade, especially in chemicals following World War I, and the repayment of war loans with interest from Allies, boosted banks' ability to lend to businesses.

Moreover, the confidence and increased speculation in the stock market, along with the rapid growth of industries like the motor car sector, had cascading effects on other industries like glass, rubber, leather, and oil, further driving economic prosperity.

In conclusion, while government policies, especially those under the Republican administrations of the 1920s, were instrumental in shaping the economic landscape of the time, other factors like technological innovations, natural resources, and global trade dynamics also played vital roles in creating the prosperity of the era. It was the combination of government policies and these external factors that ultimately led to the economic boom of the 1920s in the USA.