Economic History of the 20th Century - The Roaring 1920s

The Roaring Twenties is characterized by a cultural image of flappers, speakeasies, and glamour.
Initial reality: beginning marked by a recession in 1920-1921, sometimes called a "little d" depression.

Government Spending: Following World War I, there was a significant slowdown in government spending.
Decline in Foreign Purchases: War-torn Europe had diminished capacity to buy goods from the U.S.
Federal Reserve Policies: The Federal Reserve struggled to define effective monetary policy post-war.
- Initially kept interest rates low to support war efforts.
- Increased interest rates to retain gold, rising from 4% in 1919 to 7% in 1920.
- Higher rates discouraged consumer and business borrowing, further slowing the economy.

Bank Failures: Initial 60 bank failures in 1919 rose to over 500 by 1921.
Economic Shrinkage: The economy contracted by 20% from 1919 to 1921.
Deflation: Prices dropped, with consumer prices down by 10%, farm prices plummeting by 50% in 1920.
Unemployment Rate: Rose to about 10%, a notable increase from 1-2% during WWI.
- The greatest impact was felt on American farms, leading to widespread bankruptcies and foreclosures.

Late 1920s Boom: Following the recession, particularly by 1923, the economy began to grow rapidly again.
Standard of Living: Brightened by new technologies and consumer goods.

Massive growth in homes lit by electricity (from 15% in 1910 to 68% in 1930).
Introduction of household appliances like refrigerators, washing machines, and radios.
- Radio's popularity surged, becoming a significant form of mass entertainment.

Advent of major retail chains like Sears which expanded stores widely in suburban areas.
Increased automobile ownership: 1% in 1910 to 60% by 1930.
Residential construction surged as cars enabled commuting.

The automobile became the largest industry in the U.S. by 1927, accounting for 1/8 of manufacturing output.
Related industries like petroleum expanded rapidly, transforming national infrastructure.

Increased understanding of economic policies, particularly after the 1920-21 recession.
Budget surpluses occurred throughout the 1920s, reducing national debt.

Andrew Mellon: Promoted tax cuts from 65% to around 30% by the mid-twenties.
- Aimed to improve compliance rather than directly stimulate growth.
Tax revenue remained stable despite lower rates due to reduced tax evasion.

Between 1923 to 1929, the economy grew at a rate faster than population growth.
Wages increased; however, income inequality likely expanded as access to new technologies divided economic benefits.

Anti-immigration laws limited labor supply, supporting wage growth for existing workers.
Decline of foreign-born share of U.S. population from 26% in 1900 to 11% by 1940.

Expansion of education led to increased high school graduation rates from 10% to 30%.
Shift of labor force from agriculture to urban industrial jobs changed job opportunities significantly.

Dramatic increase of electricity as a power source for manufacturing, from 50% to 82% by the end of the 1920s.
Facilitated better working conditions and flexibility in production.

Rise in consumer debt fueled by installment buying; two-thirds of sales were on credit.
The stock market saw significant growth, with shares traded increasing by 26% annually.
Speculative activities, such as land booms, contributed to economic volatility.

Growth tends to positively influence wage increases; reliance on profits is crucial.
Be cautious in believing innovation trends will level off quickly; transformative technologies can take decades to fully integrate into society.

By the summer of 1929, optimism was rampant despite looming economic challenges.
Herbert Hoover's campaign promised progress, unaware of the impending Great Depression.