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

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Presentation transcript:

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

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” lcweb2.loc.gov

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

Causes of 1920s Economic Growth ADVERTISING  Features v. Feelings  Use of Mass Media  Promoted Installment Buying  New techniques  Criticisms  Obsolescence (planned) bss.sfsu.eduartdecoblog.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  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 ( )

Causes of 1920s Economic Growth  MULTIPLIER INDUSTRIES 1. Housing 2. Automobiles  VALUE OF COMPANIES SOARED 1. top 200 doubled in value 2. power of monopolies decreased 3. Movies - #4 industry 4. 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

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. historymatters.gmu.edu

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

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

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.