With the outbreak of World War I in 1914, the United States first declared strict neutrality but eventually engaged in the war in 1917. The public opinion against Germany's submarine warfare and the change in economic situation from a debtor nation to creditor nation that took place while it remained neutral prompted the United States to engage in the war.

The Republican Party gained power during the 1920's and returned to isolationism in diplomacy and Laissez-Faire in domestic policies. With the emergence of new industries such as radio, automobile, and movie, the United States entered into the period of prosperity. On the other hand, agriculture, coal, and cotton industries declined. As the Republican Party adopted protective policy of imposing high-tariffs, international trade stagnated and domestic business activities and monopoly were further accelerated.

Prosperity reached its peak in 1925 and stock investment and excessive investment prevailed. With the stock market crash in October 1929, the Great Depression took place in the United States. The repercussions extended to Europe thereby creating World Depression.