Economy in the 1920s

1. Economy in the 1920s

2. Post-war boom • Wages went up • Unemployment went down • “Big business in America is producing what the Socialists held up as their goal: food, shelter, and clothing for all” Lincoln Steffens (journalist) • High confidence in business • The Man Nobody Knows presented Jesus as a businessman • Jesus was a smart manager because he “picked up 12 men from the bottom of the ranks of business and forged them into an organization that conquered the world” • Business success = almost a religion

4. Welfare capitalism • Henry Ford used this idea, along with the assembly line, in his factories • New approach to labor relations • Make workers happy to increase productivity • Increased wages • Health benefits • Paid vacations • Company unions

7. Uneven prosperity • Rich got richer, number of rich families got smaller • 71% earned less than the minimum standard of living • 80% had no savings and all members of family had to work • Unskilled laborers remained poor with low wages and bad working conditions • Farmers borrowed money to get new machinery, which led to a lot of debt that they ended up not being able to pay off

8. Consumerism and personal debt • Credit/installment plans • Easier to buy big items like washing machines and cars • You might pay a little bit when you first buy the product and then pay a fixed amount each month until you’ve paid it off • Usually, you have to pay a bit more than the product’s really worth. • Ex: You want to buy a Playstation Vita for $300 • You go to the store and pay $60 and get to take it home • Every month for a year, you have to pay $22. • In the end, it’s all paid off…plus, you have paid $24 extra dollars…but you got to have the Vita NOW and not when you had saved up $300 on your own! • Many believed they could rely on future incomes to pay for things they wanted now, but sometimes job losses or changes would mess this up • Does this remind us of anything today?

10. Production and Overproduction • People began buying a LOT • Consumerism! • Consumer Economy • Depends on a large amount of spending by consumers • Advertisements encouraged people to buy more • More spending leads to bigger company profits which leads to high wages for workers which leads to more spending… • Past way of thinking: buy what you need • New way of thinking: buy what you need AND what you want… even if you don’t have the cash for both! • But then the factories began producing too much • This lead to saturated markets • A market is saturated if it’s full and no one else wants to buy the product • Example: Most houses only had one refrigerator, so the market was saturated after every house was able to buy one

17. Up and Down • Auto industry went up in the early 1920s as normal people could now afford them with the help of more efficient production, better economy, and installment plans • The industry declined after 1925 • Glass, steel, and rubber industries declined • Housing Construction fell by 25% in 1925 • Just like with other products, people bought big houses on credit expecting future employment and income to pay it off • Some people couldn’t pay of their houses and got them repossessed by the bank • That number increased greatly after the economy tanked • Banks then lost money

18. Bottom Line • There was prosperity following WWI but it was uneven…and people buying on credit set them up for problems later