Economy of the 1920s Chapter 14.2, 14.3 Signs of Prosperity Signs of Problems.

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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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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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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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


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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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


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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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


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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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


FARMERS: Overproduction Falling prices after

WWI High debt due to

machinery and land loans/costs

Veto of McNary-Haughen Bill twice (price supports)


WORKERS: Still long hours

with low wages Union membership

declining Many in transition

from old to new industries and technologies

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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


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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Economy of the 1920s Chapter 14.2, 14.3 Signs of Prosperity Signs of Problems.

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Transcript of Economy of the 1920s Chapter 14.2, 14.3 Signs of Prosperity Signs of Problems.