The 1930s Business and the Economy: Overview

The 1930s were a turning point for the economy of the United States. In the nineteenth century, the economy had been driven by heavy industry and by the expanding frontier. As the nation grew, it demanded more goods. From railway lines to locomotives, ships, and building materials, American industry was working at full tilt. World War I helped continue the trend, but by the end of the 1920s things had changed. The American economy no longer demanded enough goods to keep heavy industry in business on such a large scale. By 1931, most of the railroads had been built, and even the automobile industry was struggling. With less money to spend, people kept their cars longer, put them in storage, or simply went without. Agricultural products, oil, and coal flooded the market and prices fell. The old economy had almost stopped working.

For a while it was feared that low prices, high unemployment, and over-supply would never go away. "Stagnationist" economists thought that the economy had literally stagnated (completely stopped developing) and that it would never again be as dynamic as it was in the past. Fortunately, they were wrong. The 1930s saw the birth of a new kind of capitalism, based on service industries such as medical care and entertainment, and on consumer products like radios, televisions, refrigerators, and washing machines. These new industries created what became known as a consumer economy, an economy based on the manufacture of goods and services that are purchased and used directly by individuals for consumption. But the consumer economy was in its infancy in the 1930s, and most people were too poor to enjoy it.

One area where the new economy took off quickly was groceries. The first supermarket opened in 1930, and by 1939 there were more than five thousand supermarkets across the country. Canned and frozen food became popular, and consumers began to worry about the safety of processed food. Meanwhile the chemical and oil industries produced new fuels needed for the growing aviation industry and new materials such as rayon and nylon. These materials led to new products and markets. In the late 1930s the economy began to respond better to what people wanted, and economic hardships began to ease. Government policy helped as well. President Franklin D. Roosevelt's economic plan, the New Deal helped the construction industry by funding new public buildings. By improving access to electricity around the country, the New Deal also created a market for electrical goods.

The new economy led to major changes in the workplace. Historically, the United States has suffered some of the bitterest industrial disputes in the developed world. In the 1930s, workers at Ford's River Rouge plant in Michigan were paid extra to spy on their coworkers. In Chicago, Minneapolis, San Francisco, and elsewhere, protesters were injured and killed by hired thugs. During the Allegheny coal strike of 1934, strikers' homes were bombed. Six union organizers lost their lives. Between 1933 and 1936, the Pinkerton Detective Agency earned around $1.7 million from policing factories and mines.

With the Wagner Act of 1935, the Roosevelt administration gave labor unions a bigger say in working conditions and pay. Many industrialists were angry. But for "consumer" industries such as real estate, banking, insurance, furniture, and household goods, higher wages meant more profits because people would have more money to spend. The New Deal brought union organizers, politicians, and consumer industrialists together. These groups wanted more protection for workers from market forces, they wanted the financial markets to be better organized, and they wanted wealth to be shared more fairly through taxation. These ideas held sway into the next decade as the United States entered World War II (1938–45) and helped prepare the economy for the consumer spending boom that followed.