The Economic Conditions of the 1920's

The powerful economy might of America from 1920 to October 1929 is frequently overlooked or simply submerged by the more exciting topics such as prohibition and the gangsters, the Jazz Age with its crazies, the KKK etc. However, the strength of America was generated and driven by its vast economic power.
In this decade, America became the wealthiest country in the world with no obvious rival. Yet by 1930 she had hit a depression that was to have world-wide consequences. But in the good times everybody seemed to have a reasonably well paid job and everybody seemed to have a lot of spare cash to spend.
One of the reasons for this was the introduction of hire-purchase whereby you put a deposit on an item that you wanted and paid installments on that item, with interest, so that you paid back more than the price for the item but did not have to make one payment in one go. Hire-purchase was easy to get and people got into debt without any real planning for the future. In the1920’s it just seemed to be the case that if you wanted something then you got it.
But simply buying something had a major economic impact. Somebody had to make what was bought. This was the era before robot technology and most work was labor intensive i.e. people did the work. The person who made that product would get paid and he (as it usually was in the1920’s) would not save all that money. He, too, would spend some of it and someone somewhere else would have to make that and so he would get paid. And so the cycle continued. This was the money flow belief of John Maynard Keynes. If people were spending, then people had to be employed to make things. They get paid, spent their money and so the cycle continued.
A good example was the motor car industry. The 3 big producers were Ford, Chrysler and General Motors.
A boom in the car industry came from Ford’s with the legendary Ford Model -T.

This was a car for the people. It was cheap; mass production had dropped its price to just $295 in 1928. The same car had cost $1200 in 1909. By 1928, just about 20% of all Americans had cars. The impact of Ford meant that others had to produce their own cheap car to compete. The benefits went to the consumer. Hire-purchase made cars such as these very affordable. But there were major spin-offs from this one industry as 20% of all American steel went to the car industry; 80% of all rubber; 75% of all plate glass and 65% of all leather. 7 billion gallons of petrol were used each year and, of course, motels, garages, restaurants etc. all sprung up and all these outlets employed people and these people got paid.
To cope with the new cars new roads were built which employed a lot of people. But not everybody was happy with cars. Critics referred to cars as "prostitution on wheels" as young couples courted in them and gangsters started to use the more powerful models as getaway cars after robberies. But cars were definitely here to stay.
Not only were cars popular. Radios (10 million sold by 1929), Hoover’s, fridge’s and telephones sold in huge numbers.
By 1928 even the president, Hoover, was claiming that America had all but rid itself of poverty. The nation was fulfilling a previous president's pronouncement: "The business in America is business" - Calvin Coolidge.
But 2 groups did not prosper at all :
1) The African Americans were forced to do menial labor for very poor wages in the southern states. They lived lives of misery in total poverty. The KKK made this misery worse. In the northern states, decent jobs went to the white population and discrimination was just as common in the north as it was in the South (though the Klan was barely in existence in the north and the violence that existed in the South barely existed in the north) and many black families lived in ghettoes in the cities in very poor conditions. In the 1920’s the black population did not share in the economic boom. Their only real outlet was jazz and dancing though this was done to entertain the richer white population, and sport, especially boxing.
2) The share croppers of the south and mid-Americas. These people rented out land from landlords or got a mortgage together to buy land to farm. When they could not afford the rent or mortgage payments they were evicted from the land. There was such a massive boost in food production that prices tumbled as farmers desperately tried to sell their produce and failed. The European market was out of the question. Europe had retaliated at tariffs on their products going into the American market by putting tariffs on American goods destined for the European market thus making them far more expensive - this included grain. Many farmers in the mid-west lost their homes. Unmarried male farmers became the legendary hobos - men who roamed the mid-American states on trains looking for part-time work.
These two groups were frequently forgotten in the "Jazz Age". To many people, they were "out of sight and out of mind". It appeared that everybody had money - even factory workers and shoe-shine boys on city streets. In fact, people had spare money with nothing to do with it. They invested whatever they could in the Stock Market in Wall Street, New York. There were huge fortunes to be made here and many invested money they could ill afford to lose. However, the lure was too great and everybody knew that there was money to be made.
Stockbrokers were at fault as they were happy to accept a ‘margin’ to buy shares for a person ; this was accepting just 10% of the cost of the shares that were to be purchased for a customer. The rest was to be collected when the price of shares went up - as they would, of course.... By 1929, over 1 million people owned shares in America.
In October 1929, the Stock Market crash (also known as Black Friday)occurred. Its impact was felt worldwide and led to the Great Depression of the 30’s and 40’s.