Life in the Roaring Twenties

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Why did consumption increase in the 1920s?

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Economic theory tells us that consumption is based on supply and demand.  An increase in consumption can be caused by an increase in supply, an increase in demand, or some combination of the two.  In the 1920s in America, both supply and demand rose, causing consumption to rise dramatically.  Let us look at two ways in which increased demand caused this increase and one way in which the increase was caused by increased supply.

One of the things that determine demand is the amount of money that people have.  It stands to reason that people who have more money will buy more things.  During the 1920s, the economy boomed.  More people had jobs, making more money than ever before.  This meant that Americans had more money to spend and demand increased.

A second thing that determines demand is consumer tastes.  People want many things that they do not really need.  For example, we really do not need to have enough clothes to wear a different outfit every day for two weeks in a row, but we typically do have that many clothes.  This is partly because our tastes tell us that we should vary our wardrobe.  We do not really need makeup or jewelry, but our tastes tell us that we should have them.  During the 1920s, advertising became much more prevalent and more effective.  Before this time, advertising was more matter-of-fact, telling people what goods were available for what prices.  In the 1920s, companies started to advertise in ways that were meant to make people really want their products.  Advertising convinced people that they needed things that they had gotten along without before.  This caused an increase in demand as people wanted to use their new wealth to buy things that advertising convinced them they needed.

People also buy more things when prices drop.  One major reason why prices drop is because producers get better at making their goods.  When a producer gets better at making goods, they can make more goods using a given amount of inputs.  This reduces the price of the goods.  In the 1920s, companies innovated.  This allowed them to make goods more efficiently.  For example, Henry Ford figured out how to use assembly line practices to make cars more quickly.  This caused the price of cars to drop and allowed many more people to buy them.  This happened to many other goods.  As prices dropped, people were willing and able to buy more goods.  This, too, helped increase consumption.

Thus, we can say that consumption increased in the 1920s because people had more money, because advertising convinced them that they wanted more things, and because improved production techniques reduced the prices of consumer goods.

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Consumption increased during the 1920s because people had more money to spend.  They bought war bonds during WWI that increased in value.  People who worked in munitions plants made a good deal of money, and due to wartime shortages, they had little to spend it on.  Now that the war was over, plants that formally produced tank parts now produced car parts.  Of course, not all sectors of the economy did well after WWI, as the agricultural sector lost purchasing power due to a loss of demand from Europe for American foodstuffs.  Another reason that consumerism increased was an increase in advertising.  New technology such as the radio and the car led to the radio commercial and the billboard--a dramatic change from just print advertising.  Movie stars and athletes also got in on advertising, using product placement in movies and in print.  Yet another good reason for increased consumerism was increased credit.  People bought more things on credit during the 1920s than ever before.  Henry Ford once remarked that his business was more like a bank than a car dealership, as the Ford Motor Company financed more car buyers than the local banks.  The new gadgets like the radio and refrigerator were not cheap either, so people turned to the installment plan to buy them.  It was even possible to buy stocks without having all the money up front. Of course, the increased personal debt of the American people would be an underlying cause of the Depression that would hit at the end of the decade.   

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