Post on 02-Jan-2016
Economy of the 1920s
Chapter 14.2, 14.3Signs of ProsperitySigns of Problems
MAIN IDEA:
The Growth of a Consumer Economy caused Economic Growth but hid many signs of Economic Problems underlying the Economic Prosperity.
Review: Economic Growth Productivity GDP Govt. Economic Policy Entrepreneur
Causes of 1920s Economic Growth
CONSUMER ECONOMY Depends on spending Results in more profit,
higher wages, more spending (cycle)
Wages up 28% in 1920s
# of millionaires doubled
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Causes of 1920s Economic Growth
BUYING ON CREDIT End of “Thrift” Installment Plan High interest rates (11-
40%) Used for high % of
appliances and automobiles
“Buy now, pay later”
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Causes of 1920s Economic Growth
ELECTRIC POWER Demand quadrupled 63% of Urban homes Only 4% of Rural
homes Demand due to new
appliances General Electric – grew
to be a huge Multinational Corporation
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Causes of 1920s Economic Growth
ADVERTISING Features v. Feelings Use of Mass Media Promoted Installment Buying New techniques Criticisms Obsolescence (planned)bss.sfsu.edu artdecoblog.blogspot.com bss.sfsu.edu
1920s Advertisements
Causes of 1920s Economic Growth
INCREASE IN PRODUCTIVITY New resources New technology New machines New management techniques New manufacturing techniques
HENRY FORD & the AUTOMOBILE
1903- opened his auto company Wanted to “democratize the automobile” ASSEMBLY LINE – division of labor Economies of Scale Utilitarian vehicles – color, options Vertical Consolidation $5-a-day pay rate “Americanization” program
HENRY FORD (1863-1947)
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Causes of 1920s Economic Growth
MULTIPLIER INDUSTRIES1. Housing 2. Automobiles
VALUE OF COMPANIES SOARED1. top 200 doubled in value2. power of monopolies decreased3. Movies - #4 industry4. Airlines and Air transport
Causes of 1920s Economic Growth
Jacob Raskob: “Everybody Ought
to be Rich” Saving $15 a week
for 20 years would yield a $400 month income from investments
Encouraged more risky investments
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Causes of 1920s Economic Growth
WELFARE CAPITALISM High wages, good benefits, and employee welfare
programs became means for large employers to maintain stable labor relations.
Besides stock-purchase plans, some companies offered pensions, subsidized housing and mortgages, insurance, and sports programs.
In many cases, these employee welfare programs were distributed through “company unions,” created to keep out worker-controlled unions and build employee loyalty.
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Signs of Economic Trouble
Bypassed by the Boom: African-Americans Farmers Coal producers Cotton Textiles Railroads
Signs of Economic Trouble
UNEVEN PROSPERITY
200 companies = 49% industry
24,000 families = 34% savings
Income <$2500 = 71% families
No savings at all = 80% families
ANDREW MELLON: Secy. Of Treasury for all
1920s presidents Tax cut to wealthiest
Americans Believed they would save
and invest more
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Signs of Economic Trouble
PERSONAL DEBT (p.500)TRADITIONAL VIEW: debt was to be
feared and goods were purchased after cash was saved
MODERN VIEW: “buy now, pay later” caught up as payments took more and more of income leaving less to purchase new goods
Signs of Economic Trouble
FARMERS: Overproduction Falling prices after
WWI High debt due to
machinery and land loans/costs
Veto of McNary-Haughen Bill twice (price supports)
Signs of Economic Trouble
WORKERS: Still long hours
with low wages Union membership
declining Many in transition
from old to new industries and technologies
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Signs of Economic Trouble
LOW DEMAND: Caused by Buying on Credit Continued low wages Uneven Distribution of Income Excess Production of Goods Government monetary policy (FED)
Gold Standard Low interest rates
Signs of Economic Trouble
Everything we have talked about before are known as the Underlying Causes of the Depression.
The Depression began in 1929 as a result of the Crash of the Stock Market – the Immediate Cause.
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