The Business of America and the Consumer Economy in the 1920’s

Postwar Prosperity The "Second Industrial Revolution" : WWI stimulated development and investment in new technology that contributed to the business boom. As electricity became widespread and industrial production more efficient, mass produced consumer goods became available to the public at attainable prices. Consumers were reading many materials and purchasing the same goods. Communication innovations in radio, advertising, and film contributed to the homogenization of ideas that led to the advent of national popular culture.

Postwar Prosperity The devastation of WWI in Europe left the U.S. as the only industrial power. U.S. Steel was producing half of the world’s steel. RCA was producing 1/3 of the world’s radios The result = more production = more laborers The cycle that created the business boom in the 1920's: standardized mass production led to more efficient machines, which led to higher production and wages, which led to increased demand for consumer goods, which perpetuated more standardized mass production.

Postwar Prosperity Industry *Percentage Increase, Industrial Production: 70% Gross National Product: 40% Per Capita Income: 30% (not the whole story, why?) Output per factory man hour: 75% Corporate Profits: 62% ( ) Percentage Increase in electric power : 331% Workers *Percentage Increase, Worker's incomes: 11% Real Earnings (for employed wage earners) 22% Average Work Week: -4%

Scientific Management and the Reorganization of Work Industries began to employ automated machinery and "scientific management" to increase efficiency. The reorganization of work resulted in more spare time and disposable income for average workers. It also led to a decline in the importance of skill in favor of discipline and subordination. Businesses financed industrial research and time studies on a grand scale. The Principles of Scientific Management (1911) by engineer Frederick W. Taylor was widely published and applied - scientific management is also known as "Taylorism."

Scientific Management and the Reorganization of Work Innovative industrialist Henry Ford masterfully applied Taylor's theory of worker efficiency and wage motive. Ford began paying an unprecedented $5 a day- it was more than a pay increase, it was a means for Ford to establish a measure of control over the workforce The price of Model-T was cut in half, thereby expanding the customer base.

Scientific Management and the Reorganization of Work

A furniture factory in 1903A furniture factory in 1925

The Automobile and American Culture The explosive growth of the automobile industry revolutionized American life. Henry Ford's innovative production techniques made cars affordable for average Americans and set new standards for industry. By the end of the decade, there were enough cars on the road for every one in five persons.. Related industries sprang up including service facilities, filling stations, and motels.

General Motors Eclipses Ford Although Ford developed a system for mass-producing cars and selling them cheaply, Ford Motor Company failed to produce options for consumers. The utilitarian Model T was "available in any color, so long as it was black" and changed little in design over the years. When Alfred P. Sloan became president General Motors Corporation in 1923, he introduced alternative makes like Chevrolet and Buick that came in a variety of options and colors for increasingly sophisticated consumers. The Ford Model T

General Motors Eclipses Ford GM tapped into the emerging consumer psychology, annually producing stylist updated models yearly, marketing them aggressively, and promoting installment payment plans. Finally, in 1927, Ford Motor Company took a cue from GM's success and introduced the Model A with a blitz of advertising and the offer of installment plans. The product was so highly anticipated that many were sold before it was even introduced. GM’s 1927 Cadillac La Salle- the first car designed by a stylist. Ford’s Model A

Labor in the New Era 1929, 2/3 of the population was classified as living at or below “the minimum comfort level”. For African-Americans it was closer to 90% Labor changed in the 1920’s. Factories employed “Tayloristic” methods of production skilled (high wage) labor was replaced with more repetitive, semi-skilled tasks Piecework separated workers from a finished product, leading to alienation and job dissatisfaction Labor unions strived for collective bargaining to win wage increases, minimum wage, maximum work hours, safe work conditions Welfare Capitalism was an attempt by businesses to stunt the popularity of unions by offering: pensions, paid vacations, improved work condidtions

Labor in the New Era “Company Unions" (managed by the business) did not allow workers to express real concerns The generosity of welfare capitalism only helped workers at a few companies and only when profits were high Wages for unskilled labor rose only 2% from The American Federation of Labor (AFL) under William Green was docile to avoid being branded as a radical or Communist

Labor in the New Era The general strikes of led corporate leaders to label union organization as subversive. Created by the National Association of Manufacturers, the “American Plan” = protecting the open shop Business lobbied the U.S. government to halt union activity Supreme Court declared picketing illegal Courts issued injunctions to end strikes Police attacked strikers Union membership fell from 5 million in 1920 to 3 million in 1929

Warren Harding “Return to Normalcy” The three Republican presidents of the 1920's pursued an economic agenda similar to that of modern day Republicans; cutting taxes to free up capital for investment and cutting federal spending. President Warren Harding's campaign slogan, "Return to Normalcy," and his presidency itself were mediocre and uneventful, save for the scandals that came to light after his death in office. He took a laissez-faire stance in economics and government, so accordingly, he opposed organized labor and anti-trust measures.

Harding’s Inaugural Address (1921) “The forward course of the business cycle is unmistakable. … I speak for administrative efficiency, for lightened tax burdens, for sound commercial practices, for adequate credit facilities, … for the omission of unnecessary interference of Government with business, for an end to Government's experiment in business, and for more efficient business in Government administration. …”

Harding Economic Policy Harding delegated decision-making to a few key cabinet members. Secretary of the Treasury Andrew Mellon pushed through tax cuts to households and business,. Mellon's plan had four main points: Cut the top income tax rate from 73 to 24 percent Cut taxes on low incomes from 4 to 1/2 percent Reduce the Federal Estate tax Secretary of Commerce Herbert Hoover and Secretary of State Charles Evans Hughes worked to secure foreign markets for American companies.

Protective Tariffs A protective tariff is a tax on imported goods to make the them less competitive with American-made goods. The Emergency Tariff Act of 1921 and the Fordney-McCumber Act of 1922 imposed the highest tariff rates in history at the time, 38.5% The national mood after WWI was one of isolationism, nationalism, and concern for continued prosperity, thus lawmakers wanted to protect American interests as Europe began to recover and export its goods. The tariffs made it difficult for Europe to pay war debts and eventually slowed international trade by provoking other countries to enact high tariffs on U.S. exports. Ex. France raised the tariff on U.S. autos from 40 to 100%. Germany & Italy retaliated by raising tariffs on U.S. wheat So, what do tariffs do to U.S. exports?

Silent Cal & the Business of America When President Harding died in office in August 1923, the famously laconic Calvin Coolidge assumed the presidency. Coolidge's laissez-faire policy - cutting taxes, reducing government spending, and imposing high tariffs on foreign goods. He and Mellon were intensely focused on curbing the federal budget in an organized, business-like manner. Coolidge's famous remark, "The business of America is business," characterized the pro-business, pro-consumerism mentality of the New Era. Coolidge, Mellon, and Hoover

Coolidge’s Inaugural Address (1925) “… unless we wish to hamper the people in their right to earn a living, we must have tax reform. The method of raising revenue ought not to impede the transaction of business; it ought to encourage it. I am opposed to extremely high rates, because they produce little or no revenue, because they are bad for the country, and, finally, because they are wrong. … This country believes in prosperity. It is absurd to suppose that it is envious of those who are already prosperous.”

Advertising in the New Era Advertising techniques refined as the mutually supportive phenomena of mass production and mass media (magazines, radio) exploded into the American consciousness. Modern advertising began to take shape, using popular culture and celebrities to fuel consumption, The array of new appliances and consumer goods available at a lower cost also fueled consumption. Businesses conquered the challenge of efficiently producing enough goods (and eventually more than the market demanded); Now the focus was creating desire. Celebrity endorsement to glamorize smoking and exploit the image of the “new woman” of the 1920’s.

Advertising in the Twenties

Coolidge on Advertising (1926) “It makes new thoughts, new desires, and new actions.... It is the most potent influence in adopting and changing the habits and modes of life, affecting what we eat, what we wear, and the work and play of the whole Nation. …” “Mass production is only possible where there is mass demand. Mass demand has been created almost entirely through the development of advertising. …” “Advertising ministers to the spiritual side of trade. … It is all part of the greater work of regeneration and redemption of mankind.”

Credit and the Consumer Consumerism is the equation of personal happiness with consumption and the purchase of material possessions. As consumerism became a hallmark of Modernism, the stigma of purchasing goods on "installment plans" faded. The automobile industry was one of the first to capitalize on the potential of consumer credit, but other industries quickly followed suit. This ad characterizes credit as a prudent financial decision and a way to gain instant gratification.

Farm Economy U.S. agricultural output grew dramatically during WWI as U.S. fills the gap created by destruction of European farmland 1920’s mechanized farming, hybrid seeds, and chemical fertilizers opened 35 million new acres for cultivation requiring only half the human labor. Surplus labor (3 million) left the farms for the cities during the 1920’s Farm foreclosures increased As European farms recovered, demand for U.S. farm products fell, prices dropped dramatically, fueling more foreclosure

Herbert Hoover and the End of Prosperity Herbert Hoover served successfully as Secretary of Commerce under Presidents Harding and Coolidge. He was elected after Coolidge retired from politics in Despite his experience and predictions of prosperity, the stock market crashed just months in to his presidency. He retained his conservative ideological principles of a balanced budget, low taxes, and government non-interference, which made him vulnerable to criticism from the stricken nation.

Hoover and the End of Prosperity November, 1929 “Any lack of confidence in the economic future or the basic strength of business in the United States is foolish.”—Herbert Hoover January 21, 1930 “Definite signs that business and industry have turned the corner from the he temporary period of emergency… were seen today by President Hoover. The President said the reports to the Cabinet showed that the tide of employment had changed in the right direction.”—News dispatch from Washington March 8, 1930 “President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.”— Washington dispatch What erroneous assertions were made about the economic situation at the start of the Great Depression?

Hoover and the End of Prosperity Hoover became a scapegoat for the hardships of the Great Depression as the Jazz Age met its abrupt demise. Communities of makeshift houses became known as "Hoovervilles" as the Depression worsened in the early 1930's. This photo shows a 1935 Hooverville in a riverbed.

"You recognize this man. … Though faced with unemployment, he is combating adversity with courage.... He has spread his slender resources as far as they will go. This winter he and his family will need your help. …This is an emergency. It is temporary. But it exists. … All that America needs right now is courage. We have the resources. We have the man power. We have the opportunity for world leadership,. Let's set an example to all the world. Let's lay the foundation for better days that are sure to come." 1931

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