A Business BoomA Business BoomCh. 14.2Ch. 14.2

PP. 491-497PP. 491-497

Key TermsKey Terms• Consumer economyConsumer economy• Installment planInstallment plan• Gross national productGross national product• Henry Ford/Model THenry Ford/Model T• Assembly lineAssembly line

Key QuestionsKey Questions①① What is a What is a ““consumer economyconsumer economy”” & what & what

conditions made this possible in the conditions made this possible in the ‘‘20s?20s?②② How were Henry Ford & the automobile so How were Henry Ford & the automobile so

important to the 1920s?important to the 1920s?③③ Which groups of people benefited from the Which groups of people benefited from the

economic boom? Who was bypassed by the economic boom? Who was bypassed by the boom?boom?

U.S. EconomyU.S. Economy• Dip after shift away from war-time productionDip after shift away from war-time production• Incomes rose after 1920 thoughIncomes rose after 1920 though

• Between 1914 & 1926 incomes rose 28%Between 1914 & 1926 incomes rose 28%

• Development of Development of consumer economyconsumer economy• One that depends on a large amount of One that depends on a large amount of

consumer spendingconsumer spending

• Why a shift from thrift?Why a shift from thrift?• Higher wages, clever ads, new products, credit-Higher wages, clever ads, new products, credit-

spendingspending

Buying on creditBuying on credit• Installment planInstallment plan-Paying partial payments at -Paying partial payments at

set intervals; typically w/ interestset intervals; typically w/ interest• Fueled consumer spendingFueled consumer spending• 60% of all cars; 70% of furniture; 80% of 60% of all cars; 70% of furniture; 80% of

vacuum cleaners; 90% of washing machinesvacuum cleaners; 90% of washing machines• Paid in cash beforePaid in cash before

Electric Electric powerpower

• Electricity becomes Electricity becomes cheap & widely availablecheap & widely available

• Less popular in rural Less popular in rural areasareas• Costly to run power linesCostly to run power lines• Rural Electrification Act, Rural Electrification Act,

19361936• George NorrisGeorge Norris

• General Electric became General Electric became one of the worldone of the world’’s largest s largest companiescompanies

AdvertisingAdvertising• New ads talked less New ads talked less

about product; more about product; more about how product about how product would improve your lifewould improve your life

• Used celebrities; could Used celebrities; could be stylish/like a movie be stylish/like a movie starstar

• Persuasive/Used Persuasive/Used psychologypsychology

AdvertisingAdvertising

Rise in productivityRise in productivity• Gross National Gross National

ProductProduct-Total value of -Total value of goods & services a goods & services a country producescountry produces

• American GNP had to American GNP had to rise in order to meet rise in order to meet consumer demandconsumer demand

• From 1921-1929 the From 1921-1929 the GNP grew at an GNP grew at an average rate of 6%average rate of 6%

• Had been ~1% in 1910sHad been ~1% in 1910s

• New technology & new New technology & new management methodsmanagement methods

• Increased efficiencyIncreased efficiency

• Increased worker Increased worker outputoutput

Ford & the AutoFord & the Auto• 1896—Henry Ford perfected his 1896—Henry Ford perfected his ““quadricyclequadricycle””

• 1903—Founded his own company1903—Founded his own company

• 1908—Sold 30K Model Ts1908—Sold 30K Model Ts

Ford & the AutoFord & the Auto• Ford hoped to Ford hoped to

““democratize the democratize the automobileautomobile”” (make it (make it more affordable)more affordable)

• Assembly lineAssembly line--manufacturing process in manufacturing process in which each worker does which each worker does one specialized task in one specialized task in the construction of a final the construction of a final productproduct

• Ford made the assembly Ford made the assembly line more efficientline more efficient

• Repetitive, tedious, strain Repetitive, tedious, strain on workerson workers

• Created a Model T every Created a Model T every 24 seconds24 seconds• By 1914, whole car in 93 By 1914, whole car in 93

minutesminutes• By 1925, 9-10K/dayBy 1925, 9-10K/day

• Ford produced half of the Ford produced half of the worldworld’’s cars between s cars between 1908 & 1927 (15 million)1908 & 1927 (15 million)

• As production rose costs As production rose costs droppeddropped

Ford Assembly Line, 1913

Ford & the autoFord & the auto• Model T only came in one Model T only came in one

color—blackcolor—black• Cheap, as low as $260Cheap, as low as $260

• About 3K todayAbout 3K today

• Model T replaced by Model Model T replaced by Model A in 1927 after GM A in 1927 after GM surpassed Ford salessurpassed Ford sales• Now 4 colorsNow 4 colors

• Used vertical consolidation Used vertical consolidation to maximize profitsto maximize profits• Ford owned ore mines, Ford owned ore mines,

forests, railroads, ships,forests, railroads, ships,

• *see map on p. 495*see map on p. 495

Cost of Model T

Ford A Complex Ford A Complex BusinessmanBusinessman

• Admirable, but had personal failings

• High wages for workersHigh wages for workers

• Attempted to Attempted to ““AmericanizeAmericanize”” his his workersworkers

• Strongly anti-SemiticStrongly anti-Semitic

• Gave to charityGave to charity

Industrial growthIndustrial growth• Rise of auto industry Rise of auto industry

helped other industrieshelped other industries

• Rubber, gasoline, steelRubber, gasoline, steel

• Auto industry helped Auto industry helped other businessesother businesses

• Gas stations, motels, Gas stations, motels, car dealerships, car dealerships, restaurantsrestaurants

• By 1929, about 3.7 By 1929, about 3.7 million people owed million people owed their jobs to auto their jobs to auto industryindustry

Industrial growthIndustrial growth• Aviation industry took Aviation industry took

offoff• Built off of success of Built off of success of

Lindbergh & EarhartLindbergh & Earhart• 11stst domestic airlines domestic airlines• Passenger & cargoPassenger & cargo

• Big business took off w/ Big business took off w/ laissez-faire policieslaissez-faire policies

• Top 200 companies Top 200 companies value in 1919=$43 value in 1919=$43 billion & in 1929=$81 billion & in 1929=$81 billionbillion

Bypassed by the boomBypassed by the boom• Farm prices & demand Farm prices & demand

high during WWIhigh during WWI

• Prices drop after WWI Prices drop after WWI as European countries as European countries recoverrecover

• Esp. hogs & wheatEsp. hogs & wheat

• Many farmers were Many farmers were forced to abandon their forced to abandon their workwork

• Wages remained low for Wages remained low for unskilled laborersunskilled laborers

• Railroad companies Railroad companies stalled as trucking took stalled as trucking took offoff

The Economy in the The Economy in the Late 1920sLate 1920s

Ch. 14.3Ch. 14.3pp. 498-501pp. 498-501

Key TermsKey Terms• Welfare capitalismWelfare capitalism• SpeculationSpeculation• Buying on marginBuying on margin

Key QuestionsKey Questions①① Why did the economy of the late 1920s Why did the economy of the late 1920s

appear healthy to most Americans?appear healthy to most Americans?②② What danger signs were present in the What danger signs were present in the

economy of the lat 1920s?economy of the lat 1920s?

Election of 1928Election of 1928• Hoover promised to Hoover promised to

keep government out of keep government out of businessbusiness

• Hoped to preserve the Hoped to preserve the American system of American system of ““rugged individualismrugged individualism””

Economy appears Economy appears healthyhealthy

• People expected good People expected good times to get better times to get better during Hooverduring Hoover’’s 2s 2ndnd termterm

• Stock market soaredStock market soared

• Described by NY Times Described by NY Times as as ““wonderful prosperitywonderful prosperity””

• Unemployment below Unemployment below 4%4%

• Business success was Business success was almost like religionalmost like religion

• The Man Nobody KnowsThe Man Nobody Knows• Written by ad executive, Written by ad executive,

told of Jesustold of Jesus’’ life in life in business termsbusiness terms

• ““Everybody Ought to be Everybody Ought to be RichRich””• Article by John RaksobArticle by John Raksob

Welfare CapitalismWelfare Capitalism• New approach to New approach to

businessbusiness

• Raised wagesRaised wages

• Provided extra benefits Provided extra benefits like paid vacationslike paid vacations

• English classes for English classes for immigrantsimmigrants

• Hoped to strengthen Hoped to strengthen company loyalty & company loyalty & moralemorale

• Union membership Union membership decreaseddecreased

Economic Danger signsEconomic Danger signs• Rich getting richerRich getting richer

• Uneven wealthUneven wealth• 0.1% of the population 0.1% of the population

had 34% of the countryhad 34% of the country’’s s total savingstotal savings

• Nearly 80% of all families Nearly 80% of all families had no savingshad no savings

• Taxes had been reduced Taxes had been reduced for the richfor the rich

• Personal debt soared as Personal debt soared as credit spending credit spending increasedincreased• Luxury items seemed Luxury items seemed

affordable to allaffordable to all

• Playing the stock marketPlaying the stock market• ““Get rich quickGet rich quick”” attitudes attitudes• Speculation—Making Speculation—Making

high risk investments in high risk investments in hopes of a high returnhopes of a high return

• Buying on a margin—Buying on a margin—Purchasing stock for only Purchasing stock for only a fraction of its true costsa fraction of its true costs

• OverproductionOverproduction• Falling farm pricesFalling farm prices

Economy appears Economy appears HealthyHealthy

• But….But…. • The Crash is coming…The Crash is coming…