Mechanisation and Specialisation

In the interwar years, most of Iceland's trawler fleet sailed from Reykjavík. The bulk of the catch was processed as saltfish; as before, saltfish processing was a striking aspect of town life. When war broke out in 1939 the trawler fleet was worn out and obsolete, but vessels could not be replaced for the duration of the war. World War II proved a turning point in the trawler business, however, as almost all fish was iced and taken to Britain to be sold. Industry was given a huge boost with the advent of electricity. The first stage of the Elliðaár plant, Iceland's first large hydro-electric project, opened in 1921. At around that time, discussion began of harnessing the Sog river for Reykjavík, and the next plant, at Ljósafoss, opened in 1937.

In the 1920s, plans were made to utilise natural hot water resources in Reykjavík. Geothermal heating was supplied to about 70 houses in Reykjavík in 1930, using hot water piped from the springs in Laugardalur, which had been used for centuries for washing laundry. In World War II geothermal heating was extended to most of the town, using water pumped from Mosfellssveit north of Reykjavík. This meant the end of smoke from coal fires in the air of Reykjavík.

Motor vehicles were not imported into Iceland in any quantity until after 1913. During the inter-war years, motor vehicles were primarily commercial vehicles: taxis and trucks. The Reykjavík Bus Company was founded in 1931, initially as a private company.

Commerce in Reykjavík in the inter-war years evolved from large stores to a range of specialist shops. Small grocery stores were located almost on every corner, and the most ambitious shopkeepers increased their business to run several such shops, e.g. Liverpool, Silli & Valdi and Kiddabúð. There were also special dairy and meat shops. Fishmongers sold their wares from carts and barrows in the street. Shops selling high-quality merchandise such as clothing, shoes, domestic equipment and appliances were mainly located in the town centre and on Laugavegur. Austurstræti was the élite shopping street.

In the spring of 1940, the British military occupied Iceland. In Reykjavík, there were almost as many British troops as the whole population of the town. In 1941 the USA took over Iceland's defences. The occupation brought plenty of work and new technology, and the unemployment of the Depression years vanished overnight.