Boom to bust causes 1920s

• 4,727,468 passenger cars registered in the USA


  1917
• 23,060,000 passenger cars registered in the USA


  1929
• Mass production


  Breaking manufacturing down into a series of steps and making one worker responsible for one step in the process
• Mass production examples

  • Henry Ford's car factories
• Effects of mass production

  • Goods produced more quickly and cheaply, so they could be sold at a lower price
  • Manufacturers sold more and people bought more goods-especially cars and refrigerators
• The Ford Model T was the success story of the boom years
• Scientific management


  Breaking down each task into a series of movements, training workers in the most effective way to do the task
• Objectives of scientific management

  • Making the production line worker as effective as the production line itself
  • Paying good wages and creating good working conditions to retain workers
• The government generally avoided intervention in business, but kept some wartime subsidies to farmers in place and cut taxes for businesses to encourage 'buying American'
• Hire purchase


  Paying the company for goods in a series of fixed payments
• Between 1920 and 1929, consumer debt rose from $3.3 billion to $7.6 billion
• Before 1920, people borrowed on average 5 percent of their income; by 1929, this had almost doubled
• Changing industry

  • New industries were more efficient and used a higher level of mechanisation
  • Older industries, such as textile manufacture, became less important than newer industries that manufactured consumer goods
  • Many of the new industries, and the goods they produced, ran on electricity
• Stock market boom

  • Share prices in the new industries rose rapidly
  • Ordinary people began to buy and sell shares, creating a 'bull market'
  • People borrowed money to buy shares ('buying on the margin')
• Dividend


  A regular, usually yearly, payment made by companies to their shareholders
• Bull market


  When share prices rise and people expect this to continue
• Buying on the margin


  Buying shares with borrowed money to sell quickly at a profit
• Federal Reserve Board (Fed)


  Set up in 1913 to regulate banking
• Bear market


  When the price of shares falls and people expect the fall to continue
• Spread of electricity across America

  1. Electricity industry developed slowly before the war

  2. In the 1920s it really thrived and was crucial in the economic boom
• Electricity

  • Provided a cheap, efficient source of power for factories
  • Meant large numbers of complex machines could be used simultaneously, which made it possible to introduce mass production techniques
• Electricity


  • Supplied the power needed in the homes of consumers for the new mass produced products, such as vacuum cleaners, refrigerators and washing machines
• Electricity

  • Was vital in the development of popular entertainment during the 1920s
  • Powered the new cinemas, speakeasies and sports stadia
  • Was needed for the millions of radios in use across America
• The consumption of electricity doubled in the decade
• By 1929, 70 per cent of homes had electricity
• Availability of credit

  Many companies needed additional money to extend their businesses
• Investment banks


  • Led by JP Morgan Jr
• Businesses often preferred to raise finance

  By selling shares on the stock market
• People frequently bought the shares

  On the margin, by paying about 10 per cent of their value directly from their savings and borrowing the rest from one of the thousands of small, unregulated banks which existed
• Credit firms


  Arranged for consumers to pay for goods in instalments at low interest rates (i.e. hire purchase)
• Increased demand for goods


  Because the majority of Americans could now buy expensive items they previously could not afford
• Demand for extra goods

  Led to more jobs and more consumers
• Mass marketing

  1. Catalogue shopping became a convenient way of buying goods

  2. Chain stores opened across the country, making consumer goods readily available even in remote areas

  3. A big advertising industry grew up to promote the vast range of consumer goods
• Catalogue shopping

  • The most famous mail order company was Sears, Roebuck and Co
• Chain stores

  • JC Penney, who had a few hundred stores in 1920, expanded his empire dramatically
• By 1928, one-third of Americans bought goods from Sears, Roebuck and Co
• Improvements in the road system meant delivery by mail became easier
• Advertisements were sophisticated, colourful and full of catchphrases
• They were placed on roadsides, on the radio, in newspapers and in cinemas