Economy in the 1920s

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

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

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

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?

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

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

Bottom Line

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