After the hiccup of depression was over by 1921, the American economy began to expand rapidly. By some estimates, the country’s economic output doubled over the course of the decade, an enormous increase by anyone’s standards. But what did this type of economic growth look like, what were the reasons for it and what were its main effects?
* New production techniques : New ways for producing goods that were based on new management techniques and new technologies became much more widely used in the 1920s. Before the War, Henry Ford (interesting and irrelevant detail: Ford was terrified of cows and wanted to wipe them off the face of the earth) created a new way of mass-producing cars, which used an assembly line in which each worker had one, very specific job to do (and needed to do it as fast as possible). The idea was to shave as much wasted time off the production process as possible. The idea was wildly successful; when he set up shop in 1909, Ford’s company could only produce 10,000 Model T cars a year. In 1921 it made 1 million, and in 1925 it made 2 million. Other businessmen started to copy and adapt Ford’s ideas, applying them not just to cars but all sorts of other manufactured items, such as radios.
* Consumer goods: Henry Ford didn’t just want to make cars as quickly as possible. He also wanted people like the folks who worked in his factories to be able to buy them. It was a win-win situation: his company would have lots more customers, and ordinary workers would have a much higher standard of living. Ford paid his workers a wage that gave them money to spend on consumer goods (though they had to work very hard for it), and soon other companies followed his model. So in the 1920s, ordinary workers had more income to buy things than ever before. It was the early beginnings of mass consumer goods. Instead of just chasing rich people’s money, companies now produced goods specifically for this mass market. And Ford also pioneered the policy of offering credit to workers so that they could buy expensive goods like cars. Instead of paying for the car upfront, they bought it as a hire purchase, where they paid for it in instalments. Again, other companies did the same thing, and a totally new way of doing business was born. By the end of the roaring twenties, there were over thirty million cars on the streets of America, when in the 1910s seeing a car would have been a rarity.
* Shares: To set up a company or expand, very often you need a lot of money to get your idea off the ground. To get their hands on this sort of cash, businessmen started to offer people shares in their companies. The idea was that by giving your cash to the company, you owned part of it and were allowed a percentage of the profits. This money from the shares was used to invest in making the company bigger and better, meaning it created more profit and made both the businessmen and the shareholders rich. Each business success story created more confidence, and made more people more enthusiastic about investing in shares. There was a financial boom, which helped to create a lot of rich people in the 1920s.
As we’ll see, by the end of the decade people were too confident about investing. And when some business ventures started failing, meaning shareholders lost their money, people started to panic and sold their shares, causing the stock market to crash.
All these things helped to create a feeling of prosperity and economic confidence. There seemed to be no limit to the amount of things people could buy, or investment opportunities that would turn people into millionaires overnight.
* New music and movies: The feeling of prosperity had a real impact on how people liked to enjoy themselves, in turn stimulating a whole new entertainment industry. Taking advantage of new technology such as radio and celluloid film, as well as mass-produced products such as gramophones, for the first time musicians sold records that made them and their songs famous across America, and Hollywood produced glamorous movies that people went to see in their thousands.