The 1920s Business and the Economy: Topics in the News

INTERCITY TRANSPORTATION

When the decade began, railroads provided the most important form of transportation for people and freight. Since the late nineteenth century, railroad cars had carried passengers from coast to coast and to points in between, and freight cars had handled bulk shipments of every kind of goods. Railroads were a significant factor in the development of the American West. For decades, the U.S. railroad industry was treated as a virtual monopoly (an entity that enjoys exclusive ownership through legal privilege) on intercity transportation. The railroad system was so key to the success of the U.S. war effort in 1917 and 1918 that the federal government actually took control of the industry and did not return it to private ownership until 1921.

During the 1920s, optimism about the future of railroad usage caused management to invest more than $6 million in facilities and equipment. What the railroad executives failed to foresee was the growing importance of automobiles, trucks, buses, and airplanes in transporting people and products to all parts of the country. The decline in the use of railroads was a fairly difficult trend to detect in the early 1920s, when passenger service revenue dropped from $1.2 million to $876 thousand but freight revenue actually rose from $4.4 million to $4.8 million. By the end of the decade, however, both services were in a slight decline.

At the start of the decade, automobiles and trucks were slowly gaining a foothold in the intercity transportation industry. These vehicles would have taken a greater chunk of business away from the railroad industry if there had been an adequate system of roads; however, most U.S. roads still were unpaved and deeply rutted from wagon wheels. Rain caused many automobiles to get stuck in slippery mud and deep grooves; in fact, a number of early car companies advertised the ability of their product to operate under these primitive road conditions.

The lack of modern roads prompted the federal government in 1916 to take responsibility for financing and constructing intercounty and interstate road systems, to be built according to a national standard. Thus the 1920s became a decade of road construction. Such major thoroughfares as U.S. Highway 1, U.S. Highway 50, and U.S. Interstate 66 became key interstate transportation routes and spawned the construction of many branch roads. Aside from the issue of road conditions, the use of trucks and buses for intercity transportation was limited by the actual design of those vehicles. Trucks of the 1920s basically were larger versions of automobiles, and the tractor-trailer was in a pioneering stage. Buses, too, were built less substantially than they would be in the 1930s, and commercial bus lines of the decade were small enterprises that were in effect "mom and pop" operations. With these limitations, trucks and buses generally were used only for short trips during the 1920s.

World War I brought the attention of the American public to airplane carriers; it was not until 1927, however, with the highly publicized transatlantic flight of Charles Lindbergh (1902–1974), that Americans began to imagine the eye-popping potential of flight. In 1920, people viewed airplanes as entertainment; they flocked to air fields near circuses and country fairs to be thrilled as stunt pilots or "barnstormers" performed loop-the-loops in former army planes. Many saw the airplane's only practical peacetime function as a fast means of mail delivery. Then in 1925, Congress passed the Kelly Act to help the air carrier industry provide facilities for transporting passengers. Still, airplanes, most of which held only eight to twelve travelers, did not attract many passengers because they were uncomfortable, noisy, and perceived as dangerous. The airplane industry would provide no more than 2.3 percent of the total passenger transport market during the next fifteen years.

CONSTRUCTION AND BUILDING

During the 1920s, there was a building boom in cities and suburbs across the nation. In 1925, total annual construction spending reached more than $6 billion, compared to slightly more than $919 million in 1916. In cities, commercial construction of hotels, office buildings, and apartment buildings reflected a growing economy. Many of these were multistory, art deco-designed buildings. In the suburbs, residential tract housing was springing up to meet the growing demand for homes located in the peace and beauty of the countryside, but within an automobile's reach of jobs. Specialized banks, later known as savings-and-loan institutions, offered longterm mortgages to home buyers at affordable rates; these lending groups also allowed their members to pay for automobiles in installments. Residential houses usually sold for $3,500 to $5,000, but many blue-collar workers earned only $1,200 to $1,800 per year. So, while suburban life may have appealed to many Americans, it was affordable only to those in the middle class that held secure jobs. As residential housing grew in the suburbs, so did the need to build suburban schools, civic buildings, and shopping areas. At the same time, middle-class suburbanites with expendable incomes called for the construction of recreational country clubs and golf courses.

Meanwhile, wealthy industrialists were paying for the construction of two very different types of buildings: academic structures and industrial plants. Through philanthropic foundations, multimillionaire families such as Rockefeller, Morgan, and Duke were funding the building of new libraries and classrooms at universities and colleges across the country, many of which were designed to mirror the intricate Western European Gothic structures of past centuries. The same private fortunes were paying to put up modern factories with improved electricity, better lighting and increased ventilation. Industrial architect Albert Kahn (1869–1942) designed a number of automobile plants for Henry Ford (1863–1947) during the decade, including the Ford Motor Company's tremendous River Rouge plant, which opened just in time to start production of the new Model A automobile in 1927.

The building boom came to an abrupt halt in late 1929 when the stock market crashed. Many huge commercial projects, such as the Empire State Building in Manhattan, built from 1929 to 1931, remained almost vacant until the next real estate boom in 1941, when the United States entered World War II.

Greenfield Village

Industrial giant Henry Ford once stated that history was "bunk." Yet in 1919 he began building a living museum of sorts called Greenfield Village on his property in Dearborn, Michigan, near the River Rouge auto plant.

Ford spent $37 million to recreate various aspects of history, including tradesmen's and workers' shops. This was more money than his family foundation had donated to philanthropic causes. Ford even transported the laboratory used by Thomas Edison (1847–1931) from New Jersey to the site.

AGRICULTURAL PRODUCTION

Farmers did not take part in the prosperity of the 1920s. The industry was made up of thousands of small farmers, none of whom had control over the marketplace. Additionally, the make-up of American farming did not lend itself to benefit from the same advantages other industries enjoyed. Farming is dependent upon natural forces such as weather, and in spite of all the modern technologies that were being applied to farm production in the 1920s, such as trucks, tractors, electricity, and chemical fertilizers, there was an ongoing problem of overused farmland. Because one farm's output pretty much duplicated the neighboring farm's, the agriculture industry could not attract buyers based on competitive advertising. After all, wheat is wheat! Farming as a lifestyle was considered rather dull to a young rural generation who left their parents' farms for the cities seeking better-paying jobs and jazz-age adventure.

Even so, certain types of farm production did increase during the 1920s. Citrus growers in Florida and California prospered as the demand for oranges and grapefruits rose. Livestock producers thrived as the well-heeled consumer's demand for meat increased. In general, however, farmers suffered, particularly the southern cotton growers and the midwestern grain growers. While the government was busy supporting industry, neither the administration of Warren Harding (1865–1923) nor Calvin Coolidge (1872–1933) showed much interest in the plight of the American farmer. In fact, Coolidge vetoed the McNary-Haugen Bill which promised relief for farmers.

GOVERNMENT AND BUSINESS

Whereas the administration of Woodrow Wilson (1856–1924) took an active part in regulating big business, the policies of Warren Harding and Calvin Coolidge emphasized a "laissez-faire" attitude, drastically cutting governmental control of industry. Except for the regulation of the railroads, public utilities, radio broadcasting, and air carriers, the federal government rarely involved itself with industry. Harding's so-called "rule of reason" worked to counter the existing antitrust laws (legislation which keeps businesses from illegally restraining competition), and although a minimum wage for workers was set by the federal government, there were no government unemployment benefits, Social Security benefits, or other labor/consumer protections. Much of Wilson's reform program, known as the "New Freedom," went by the wayside with the advent of World War I. The 1920s was a decade of temporary prosperity due in part to low taxes and the encouragement of the growth of big business.

Harding was concerned mainly with a quick return to prewar "normalcy," and he was so anxious to remove wartime restraints from American life that he took shortcuts that later resulted in charges of corruption and scandal. Coolidge was more careful in fulfilling his presidential duties, but his belief in a frugal government with a small national budget allowed business to prosper without federal intervention. When Coolidge was warned that the stock market was starting to spin out of control, he was concerned at first. However, when he later learned that the New York Stock Exchange's collapse fell under the jurisdiction of the state of New York and not the federal government, Coolidge was relieved because he would not have to take corrective action.

Aside from the aircraft industry, the only other business in which the government took an active part during the 1920s was the radio industry. By the middle of the decade, there were so many commercial radio stations that a predicament arose over the frequencies at which they broadcast. The stations with the strongest frequencies were attracting the most listeners. While the radio audience delighted in receiving long-distance stations, local advertisers were fuming because the listener, and potential customer, who lived one mile down the road was picking up the signal of a station one hundred miles away. To alleviate this problem, President Coolidge signed legislation to create a regulatory body within the Commerce Department that later became the Federal Communications Commission (FCC). This body regulated the frequencies at which radio stations were allowed to operate.

THE AIRCRAFT INDUSTRY

Following the Kelly Act of 1920, the government began to subsidize aircraft companies that produced airplanes to carry mail. One pioneer contractor in the aircraft industry was Seattle-based lumber businessman William Boeing (1881–1956), who in 1925 won a contract to deliver mail between San Francisco and Chicago without having a plane that could do the job! To fulfill his contract, Boeing produced the 40A model aircraft which could carry 1,200 pounds of mail, and later a few passengers, over the Sierra Nevada and the Rocky Mountains. The 40A, which had been designed by expert engineers, sold for $25,000 and attracted many buyers. This success marked the beginning of Boeing Aircraft, the largest airplane manufacturer in the world.

By mid-decade, the fledgling but well-organized aircraft industry included the group of corporate contractors who would dominate the industry up to the start of World War II. Among them were Boeing, Ryan, Glenn L. Martin, Douglas Aircraft, Lockheed, Curtiss-Wright, and even the Ford Motor Company, which was manufacturing the tri-motor airplane (nicknamed the Tin Goose).

THE AUTOMOBILE INDUSTRY

In 1920, the best-selling car on the road was the Ford Motor Company's Model T, which at its lowest price cost $260. Ford had sold 17 million of these cars. Between 1900 and 1930, more than two thousand car manufacturers had been in business. Smaller firms such as Packard, Nash, Hudson, Franklin, Duesenberg, and Pierce-Arrow generally made high-priced, high quality automobiles. Despite the existence of so many companies, the public bought cars mainly from the "Big Three": General Motors (GM), Chrysler, and Ford. GM provided the Chevrolet, Chrysler the Plymouth, and Ford the Model T and Model A.

The popularity of cars brought about economic growth not only in automobile manufacturing, but also in related businesses such as car dealerships, auto parts and supplies manufacturers, petroleum-product developers, and service stations and garages. The number of businesses actually influenced by the increased use of the automobile is a long one: cars brought about the construction of highways and roads linking major cities and small communities all across the country; cars resulted in the rise of the suburbs; car travel produced enterprises such as tourist-court motels, some known as "motor inns," and motorist amenities such as gasoline stations and roadside restaurants.

For the first quarter of the twentieth century, owning any car was a status symbol. Later, owning a new car model became the goal of most Americans. By the late 1920s, car manufacturers landed upon the idea of making changes in car models each year to keep their sales up. By that time, the automobile industry was the largest in the United States. In 1926, 4.2 million cars were manufactured, and by 1930 that figure had risen to 5.3 million. It has been estimated that Americans owned 39 percent of the world's production of automobiles by 1927, when GM and Ford cars also were popular in Europe.

The Day the New Cars Arrived in Town

The day that new car models arrived at local dealerships across America was a very special day indeed. Each year, during September and October, the next-year-model Fords, Chevrolets, and Plymouths, as well as the higher-priced Lincolns, Packards, and Cadillacs, would be transported by special railroad cars to communities across the country. The cars would be unpacked at the freight yards and driven to well-lit showrooms in dealerships. Potential customers and "window shoppers" alike flocked to see the cars and pick up brochures that described the advantages of the new intriguing updates, such as hydraulic brakes, "free wheeling," "the turret top," "knee action," and "synchro-mesh transmission."

RADIO AND BROADCASTING

The use of radio was limited to hobbyists and communications specialists in its early days. In 1920, KDKA became the first commercial radio station. Other stations quickly followed. In those days, an investor with just $20,000 could set up and run a radio station, although a fallback fund was necessary to pay for maintaining the specialized technical equipment. In the 1910s, stations mainly broadcast news or general information; soon, however, it became apparent to radio industry pioneers such as David Sarnoff (1891–1971), a New York City-based telegraph operator who eventually molded the modern communications industry through Radio Corporation of America (RCA), that radio could be used as a profitable means of entertainment with commercial sponsorship in the form of on-air advertisements. Between 1921 and 1929, the value of radios owned in the country rose from $10.6 million to $411 million.

Radios in homes reached the ears of two thousand Americans in 1920; there were 2.5 million radio listeners by the beginning of 1924. As radio became a major pastime of the American public, the government set up a bureau within the Department of Commerce to regulate broadcasting. Two major functions of the bureau were to keep stations from trespassing on each other's frequencies and to coordinate overlapping programs such as national political addresses.

Radio Programming

Radios began to be marketed for home use in 1920 and more than five million were sold each year of the decade. In 1925, more than 70 percent of broadcast time was devoted to music. Only 1 percent was dedicated to drama; 7 percent to news, and 2 percent to sports. Each week, radio stations also broadcast speeches from civic and professional organizations.

THE GROWTH OF RETAIL

Middle-class and working-class Americans prospered during the 1920s, which led directly to a growth in retail trade. With the spread of residential areas to the suburbs, retailers found new locations to do business. Many merchants decided to open multiple stores in various neighborhoods, giving rise to the concept of the retail chain. By 1927, some fifteen hundred retail companies were operating stores in nearly seventy thousand locations; popular chains included the A&P and Kroger food stores, J.C. Penney department stores, Walgreen drugstores, Fanny Farmer candy stores, and Child's restaurants. Certain chain stores offered employees the opportunity to buy stock in the company and gave young managers the chance to rise through the ranks to corporate positions. Retail management had come a long way from such outdated nineteenth-century marketing practices as drummers (salesmen) leading horses and wagons from town to town. Now, university graduates were formulating scientific marketing methods and relying upon modern advertising campaigns to motivate American consumers to spend their money on all sorts of products.

The rise of chain stores provoked strong competition among the large mail-order companies that had arisen at the end of the nineteenth century, including Sears Roebuck and Montgomery Ward. In the meantime, the department stores in big cities became even grander in their structures and extravagant in their choice of merchandise. In New York City, Saks Fifth Avenue sold raccoon coats for $1,000 each, pigskin trunks for $3,000, and even livery (uniforms) for the family chauffeur! Through merger and consolidation (buying and/or combining with other companies), retail firms became big-city selling powerhouses. For instance, Gimbel Brothers in New York City acquired Kaufman's in Pittsburgh, and similarly, in 1929 Lazarus Brothers took over Abraham & Straus in New York City, Filene's in Boston, Bullock's in California, and other chain department stores to create Federated Department Stores.

J. C. Penney's Stores

The name behind what was once the largest chain of dry goods stores in the country is James Cash Penney (1875–1971). One of the best-known retail merchants of the twentieth century, his policies included cash-and-carry, profit-sharing and stock ownership for managers, and good quality but modestly priced goods. In the 1920s, Penney's stores were located on main streets in communities across the country. The managers were men and the sales staffs were women. The stores featured clothing for the family, fabrics by the yard, sewing supplies, stockings, and underwear. In 1929, Penney owned 1,495 stores.

LAND SPECULATION AND THE FLORIDA BOOM

Before the 1920s, Florida was a relatively undeveloped state; there was very little industry except for some tourism and agriculture. One of the first promoters of the Florida land boom was an outsider to the state, millionaire Henry M. Flagler (1830–1913) of Standard Oil. In the 1890s, Flagler put through the Florida East Coast Railroad, and then saw fit to build a number of luxury hotels and resorts. A major publicity campaign was waged to attract Americans to purchase thousands of low-cost lots in the warm climate of snowless winters and exotic terrain. Throughout the early 1920s, land speculators were buying lots for immediate resale at tremendous profits. This pattern escalated as the land was subdivided again and again for resale at substantial profit.

The boom slowed in 1925 when northern newspapers cautioned the public about the dangers of spending such inflated amounts of money on strips of poorly developed land. Then on September 18, 1926, a powerful hurricane swept through the east coast of Florida, killing hundreds and obliterating the many cheaply constructed homes that had been built by eager investors. In some ways, the Florida land boom crash foreshadowed the stock market crash of 1929.

THE STOCK MARKET BOOM GOES BUST

Commercial banks expanded their activities during the 1920s. Financial institutions such as the Bank of America and Chase Manhattan Bank grew more powerful through mergers and consolidation and used their combined resources for construction and consumer loans. Investment banks (banks which did little or no commercial business such as handling checking accounts, but instead lent money to entrepreneurs) became more plentiful; there were 277 investment banks in 1912, but their number rose to 1,902 by 1929.

Wall Street investing had always been thought of as a pastime for the wealthy; by 1920, however, the middle class began to invest in the stock market. Ever since they had bought Liberty Bonds during World War I, Americans had felt more open to buying stocks in an increasing number of public corporations. Stockbrokers began opening offices in cities across the country to accommodate the investing public. It became quite stylish to invest in the stock market, and casual conversation often included the latest stock tips. In general, it was safe to invest funds in the market, because firms such as American Telephone & Telegraph, General Motors, Radio Corporation of America, and U.S. Steel were expanding rapidly and making increased profits for investors. When Charles Lindbergh (1902–1974) successfully flew the first solo nonstop transatlantic flight in 1927, investors became enthusiastic about airplane and aircraft-related stocks.

Stock trading volume rose steadily until the summer of 1929, when Wall Street brokers could not keep up with the mounting paperwork. The

Wall Street Industrial Averages for October 1929

number of shares of stocks sold was rising to unimagined heights. For example, on September 3, 4.4 million shares were sold. What made the situation dangerous was the fact that investors were buying on margin (credit), a situation that was tolerable only while the market was rising. Many experts cautioned the public about the vulnerability of the stock

market, but most investors were so enthusiastic about the profits they were making that they refused to listen to warnings.

Traders who bought stocks on margin paid a portion of the price of the stock and then relied on future profit in order to complete payment of the transaction. If the stock fell, the customer would have to put in more money to sustain the account. In September 1929, stockbrokers' loans totaled $670 million—a good sign that signaled continued interest in the market, but also a bad sign that displayed the weak "house of cards" that market transactions had become. If a stock were to fall and then keep falling, the investor could not pay money owed to the broker; and the broker, in turn, could not pay the loan to the New York banks which had borrowed from the Federal Reserve, the leaders of the nation's financial system. Also, because paperwork methods were primitive and usually days behind transactions and the tickertape (the ribbon on which a telegraphic machine prints information) announcing current stock prices usually was one hour behind, investors would not be able to keep up with market action if a crisis occurred.

That crisis came on October 24, 1929. First, communications failed as the ticker lagged and the telephone lines became jammed, leaving investors ignorant of a tremendous amount of trading action in the market. Before the morning ended, brokers were selling huge blocks of stock for whatever price they would bring. As the selling continued, the decorum of the stock

market floor had slid from dignified quiet into loud shouting, and the public gallery was closed by the acting president of the New York Stock Exchange, Richard Whitney (1888–1974). Whitney called a meeting of top Wall Street bankers and then, in a brash move to bolster trader confidence when everyone else was selling out, he purchased a purported $20 million worth of blue-chip stocks (stocks from well-established companies that normally hold great value). His action was witnessed by all those on the stock exchange floor. This bold move temporarily calmed investors, but the system fell apart altogether on the following "Black Tuesday," October 29, 1929, when traders sold stocks in huge quantities until the market completely caved in to the frailties of the system. Many who were buying stocks on margin lost their fortunes and went deeply into debt. Brokers lost their businesses, and banks could not recover their loans.

The stock market crash pushed the U.S. economy from the prosperity of the 1920s to the eventual Great Depression of the 1930s. Never again would the government remain so uninvolved as to allow citizens to play haphazardly in the market. Bankers who had been among the most respectable members of the community were now seen as questionable characters. Many of them were brought before congressional committees and charged with mismanagement. Some were even criminally prosecuted. Although not every investor lost money, many lifestyles were radically changed and some investors with heavy losses committed suicide. The show business trade paper Variety summed up the desperate situation with the now legendary headline: "Wall St. Lays an Egg."