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An introduction to the history of the united states in 1920s

Gene Smiley, Marquette University Introduction The interwar period in the United States, and in the rest of the world, is a most interesting era. The decade of the 1930s marks the most severe depression in our history and ushered in sweeping changes in the role of government. Economists and historians have rightly given much attention to that decade.

The United States Turns Inward: the 1920s and 1930s

However, with all of this concern about the growing and developing role of government in economic activity in the 1930s, the decade of the 1920s often tends to get overlooked.

This is unfortunate because the 1920s are a period of vigorous, vital economic growth.

  • Prior to the First World War, the telephone eased farm isolation and provided news and weather information that was otherwise hard to obtain;
  • Such activity led naturally to the promotion of birth control, though it was still widely illegal;
  • The Mutual savings banks were concentrated in the northeastern United States.

It marks the first truly modern decade and dramatic economic developments are found in those years. There is a rapid adoption of the automobile to the detriment of passenger rail travel.

Though suburbs had been growing since the late nineteenth century their growth had been tied to rail or trolley access and this was limited to the largest cities. The flexibility of car access changed this and the growth of suburbs began to accelerate. The demands of trucks and cars led to a rapid growth in the construction of all-weather surfaced roads to facilitate their movement.

The rapidly expanding electric utility networks led to new consumer appliances and new types of lighting and heating for homes and businesses. The introduction of the radio, radio stations, and commercial radio networks began to break up rural isolation, as did the expansion of local and long-distance telephone communications. Recreational activities such as traveling, going to movies, and professional sports became major businesses. The period saw major innovations in business organization and manufacturing technology.

The Federal Reserve System first tested its powers and the United States moved to a dominant position in international trade and global business.

These things make the 1920s a period of considerable importance independent of what happened in the 1930s. National Product and Income and Prices We begin the survey of the 1920s with an examination of the overall production in the economy, GNP, the most comprehensive measure of aggregate economic activity.

Real GNP growth during the 1920s was relatively rapid, 4. By both nineteenth and twentieth century standards these were relatively rapid rates of real economic growth and they would be considered rapid even today. There were several interruptions to this growth.

In mid-1920 the American economy began to contract and the 1920-1921 depression lasted about a year, but a rapid recovery reestablished full-employment by 1923. From 1923 through 1929 growth was much smoother. There was a very mild recession in 1924 and another mild recession in 1927 both of which may be related to oil price shocks McMillin and Parker, 1994. The Great Depression began in the summer of 1929, possibly as early as June.

The initial downturn was relatively mild but the contraction accelerated after the crash of the stock market at the end of October. Real total GNP fell 10. Price changes during the 1920s are shown in Figure 2. The Consumer Price Index, CPI, is a better measure of changes in the prices of commodities and services that a typical consumer would purchase, while the Wholesale Price Index, WPI, is a better measure in the changes in the cost of inputs for businesses.

As the figure shows the 1920-1921 depression was marked by extraordinarily large price decreases. Consumer prices fell 11. After that consumer prices were relatively constant and actually fell slightly from 1926 to 1927 and an introduction to the history of the united states in 1920s 1927 to 1928.

Wholesale prices show greater variation. The 1920-1921 depression hit farmers very hard. Prices had been bid up with the increasing foreign demand during the First World War. As European production began to recover after the war prices began to fall. Though the prices of agricultural products fell from 1919 to 1920, the depression brought on dramatic declines in the prices of raw agricultural produce as well as many other inputs that firms employ.

In the scramble to beat price increases during 1919 firms had built up large inventories of raw materials and purchased inputs and this temporary increase in demand led to even larger price increases. With the depression firms began to draw down those inventories. The result was that the prices of raw materials and manufactured inputs fell rapidly along with the prices of agricultural produce—the WPI dropped 45.

The price changes probably tend to overstate the severity of the 1920-1921 depression. Wholesale prices in the rest of the 1920s were relatively stable though they were more likely to fall than to rise. Economic Growth in the 1920s Despite the 1920-1921 depression and the minor interruptions in 1924 and 1927, the American economy exhibited impressive economic growth during the 1920s.

The United States Turns Inward: the 1920s and 1930s

Though some commentators in later years thought that the existence of some slow growing or declining sectors in the twenties suggested weaknesses that might have helped bring on the Great Depression, few now argue this.

Economic growth never occurs in all sectors at the same time and at the same rate. Growth reallocates resources from declining or slower growing sectors to the more rapidly expanding sectors in accordance with new technologies, new products and services, and changing consumer tastes.

Economic growth in the 1920s was impressive. Ownership of cars, new household appliances, and housing was spread widely through the population. New products and processes of producing those products drove this growth.

The combination of the widening use of electricity in production and the growing adoption of the moving assembly line in manufacturing combined to bring on a continuing rise in the productivity of labor and capital. Though the average workweek in most manufacturing remained essentially constant throughout the 1920s, in a few industries, such as railroads and coal production, it declined. Whaples 2001 New products and services created new markets such as the markets for radios, electric iceboxes, electric irons, fans, electric lighting, vacuum cleaners, and other laborsaving household appliances.

This electricity was distributed by the growing electric utilities. The stocks of those companies helped create the stock market boom of the late twenties. RCA, one of the glamour stocks of the era, paid no dividends but its value appreciated because of expectations for the new company.

Like the Internet boom of the late 1990s, the electricity boom of the 1920s fed a rapid expansion in the stock market. Fed by continuing productivity advances and new products and services and facilitated by an environment of stable prices that encouraged production and risk taking, the American economy embarked on a sustained expansion in the 1920s. Population and Labor in the 1920s At the same time that overall production was growing, population growth was declining.

As can be seen in Figure 3, from an annual rate of increase of 1. These changes in the overall growth rate were linked to the birth and death rates of the resident population and a decrease in foreign immigration. Though the crude death rate changed little during the period, the crude birth rate fell sharply into the early 1930s.

Figure 4 There are several explanations for an introduction to the history of the united states in 1920s decline in the birth rate during this period. First, there was an accelerated rural-to-urban migration. Urban families have tended to have fewer children than rural families because urban children do not augment family incomes through their work as unpaid workers as rural children do. Immigration also fell sharply. A new act in 1924 lowered this to 2 percent of the resident population at the 1890 census and more firmly blocked entry for people from central, southern, and eastern European nations.

The limits were relaxed slightly in 1929. The American population also continued to move during the interwar period. Two regions experienced the largest losses in population shares, New England and the Plains.

For New England this was a continuation of a long-term trend. The population share for the Plains region had been rising through the nineteenth century.

In the interwar period its agricultural base, combined with the continuing shift from agriculture to industry, led to a sharp decline in its share. The regions gaining population were the Southwest and, particularly, the far West. During the 1920s the labor force grew at a more rapid rate than population. This somewhat more rapid growth came from the declining share of the population less than 14 years old and therefore not in the labor force. In contrast, the labor force participation rates, or fraction of the population aged 14 and over that was in the labor force, declined during the twenties from 57.

This was entirely due to a fall in the male labor force participation rate from 89. The primary source of the fall in male labor force participation rates was a rising retirement rate.

Employment rates for males who were 65 or older fell from 60. With the depression of 1920-1921 the unemployment rate rose rapidly from 5. The recovery reduced unemployment to an average rate of 4. The unemployment rate rose to 5. Otherwise unemployment remained relatively low. The onset of the Great Depression from the summer of 1929 on brought the unemployment rate from 4. Figure 5 Earnings for laborers varied during the twenties. Table 1 presents average weekly earnings for 25 manufacturing industries.

For these industries male skilled and semi-skilled laborers generally commanded a premium of 35 percent over the earnings of unskilled male laborers in the twenties.

Unskilled males received on average 35 percent more than females during the twenties. Real average weekly earnings for these 25 manufacturing industries rose somewhat during the 1920s.

For skilled and semi-skilled male workers real average weekly earnings rose 5. Real average weekly earnings for females rose on 1. Real weekly earnings for bituminous and lignite coal miners fell as the coal industry encountered difficult times in the late twenties and the real daily wage rate for farmworkers in the twenties, reflecting the ongoing difficulties in agriculture, fell after the recovery from the 1920-1921 depression.

The 1920s were not kind to labor unions even though the First World War had solidified the dominance of the American Federation of Labor among labor unions in the United States.

The rapid growth in union membership fostered by federal government policies during the war ended in 1919. A committee of AFL craft unions undertook a successful membership drive in the steel industry in that year. Steel refused to bargain, the committee called a strike, the failure of which was a sharp blow to the unionization drive. Brody, 1965 In the same year, the United Mine Workers undertook a large strike and also lost.

These two lost strikes and the 1920-21 depression took the impetus out of the union movement and led to severe membership losses that continued through the twenties. The AFL officially opposed any government actions that would have diminished worker attachment to unions by providing competing benefits, such as government sponsored unemployment insurance, minimum wage proposals, maximum hours proposals and social security programs.

But Irving Bernstein 1965 concludes that, on the whole, union-management cooperation in the twenties was a failure.