How did Republican pro-business policies encourage economic growth in the 1920s?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The 1920s are considered to be a time when the government pretty much got out of the way of business and allowed it to operate as it pleased.  Conservative historians, in particular, believe that this laissez-faire attitude is what encouraged economic growth.

For example, the Republican governments of the '20s did not do much to enforce the antitrust regulations that had been put in place by the Progressives.  This allowed businesses to increase in size and to, therefore, become more efficient.

In addition to this sort of "hands-off" attitude, the Republican administrations also cut taxes of all sorts.  Economic historians argue that this gave people more of an incentive to work and to invest.  By doing so, they argue, the government promoted growth.

The 1920s are seen, especially by conservatives, as a time that shows how important it is for government to cut taxes and regulations.  This, they say, caused the economy to grow in the 1920s.

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larrygates | College Teacher | (Level 1) Educator Emeritus

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It was Calvin Coolidge who said at the time, "the business of America is Business; the man who builds a factory builds a temple; the man who works there worshps there." It was not Coolidge, but the work of Andrew J. Mellon, Secretary of the Treasury who promoted pro business policy. Mellon's policy, which was classic Supply-Side Economics, called for reduced government spending and lower taxes. He favored higher taxes to favor American industry and industrial innovation. Among his other plans, which almost backfired, was the Fordney McCumber Tariff, which increased tariff rates on metal and chemical products. The idea was to protect those industries on American soil, and thereby promote growth.

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