1920s American Industry, Mass Consumption & the Market Crash

It was a decade of contradictions. It was not only a period of hedonism but there was another important aspect: transformation of American industry.

Transformation of American Industry

Transformation of American industry

• Consumption: major driver of American industry.
• Readjustment: military and army technological advances adapted for civilian uses.
• Mass consumption: helped to originate installment plans.

The Great Depression

The Great Depression

The Industrial Utopia in the 1920s

Charles Sheeler and Precisionism

Charles Sheeler was a painter of Precisionism, a movement where artists celebrated industrial capitalism in their paintings. Those examples represent the new Ford factory.

Economic Factors Behind the Crash

Economic factors behind the crash

Credit Boom

Credit boom: rapid growth in bank credit and loans. People felt the stock market was a one-way bet, so they didn’t simply borrow to buy consumer products, but also to buy shares. Firms took out more loans for expansion.

Buying on the Margin

Buying on the margin: this meant you only had to pay 10 or 20% of the value of the shares; you were borrowing 80–90% of the value of the shares. This enabled more money to be put into shares, increasing their value. There were many “margin millionaire” investors who made huge profits by buying on the margin and watching share prices rise. But it left investors very exposed when prices fell.

Speculative Bubble

Speculative bubble: it was the new gold rush. People bought shares with the expectation of making more money. As share prices rose, people started to borrow money to invest in the stock market. Shares kept rising and people felt they would continue to do so. The problem was that stock prices were not being driven by economic fundamentals but by investor optimism. The average earnings per share rose by 400% between 1923 and 1929.

Mismatch Between Production and Consumption

Mismatch between production and consumption: the 1920s saw great strides in production techniques, especially in industries like automobiles. The production line enabled economies of scale and great increases in production. However, demand for expensive cars and consumer goods struggled to keep up. Therefore, towards the end of the 1920s many firms were struggling to sell all their production. This caused some disappointing profit results which precipitated falls in share prices.

Weaknesses in the Banking System

Weaknesses in the banking system: before the Great Depression, the American banking system was characterized by many small to medium-sized firms. America had over 30,000 banks. The effect of this was that they were more likely to go bankrupt in a recession. In particular, many banks in rural areas went bankrupt due to the agricultural recession. This had a negative impact on the rest of the financial industry. Between 1923 and 1930, 5,000 banks collapsed.