The 1920’s was the period in which we had many new inventions and discoveries. The business environment flourished. Credit was the new thing and people started purchasing on credit basis rather than saving their earnings. The recession that the country experienced after the war was over and now people were on a spending spree. Companies started making large amounts of profits. Patents were being purchased for every little thing and everybody considered them an inventor.
This period was marked with many new things; we will discuss four of these new policies or changes: discount grocery stores were setup by Henry Ford, installment plans were introduced, and this was the new way of purchasing. The was a huge increase in the number of millionaires and the salaries of executives increased as well as receiving huge amounts of Christmas Bonuses.
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These were initially introduced for the Henry Ford’s company employees but employees generally lend their employee cards to their friends and family. The stores were them opened to the general public of Detroit and people all around the country wished that they lived there. The other merchants protested and it was decided that the store would be closed to the public. Henry Ford basically opened the store so that people could not profit from his employees. He was paying a high wage according to those times, $5. When the merchants would find out that the wages have been increased they would increase the prices of their goods.
These discount stores were able to this because they would purchase 10 to 40 per cent under the prevailing retail prices. The layout of the store were designed in such a way that it did not waste space, there were no frills and flounces and no servility. This type of layout is what we see now in any department store. (1920-30.com)
Today we purchase almost everything on installments. It has become such a big part of our lives that we do not even think about it twice. Even our houses are bought by us on installments which we know as mortgage.
Before these plans were introduced only the wealthy could afford to buy consumer items such as cars, refrigerators, washing machines, radios and pianos. Once this plan was introduced people of all walks of life could afford to purchase these items. It was initially started by one manufacturer who decided to let the shopper make periodical payments for a limited time period. The other manufacturers to stay competitive had to do the same otherwise they would have lost their customers.
It was estimated that 75 per cent of all automobiles, 85 or 90 per cent of all furniture, 80 per cent of all phonographs, 75 per cent of washing-machines, 65 per cent of vacuum cleaners, 25 per cent of all jewelry, and the greater part of all pianos, sewing-machines, radios, and electric refrigerators, were sold by partial payment. Even clothes were being sold on this installment plan; the amount summed up to $ 1.4 million.
The British saw that these plans had worked really well in America; they decided to introduce their own version of the installment plan which they called, ‘buying on tick.’
Installment plans have helped reduce the class structure of shopping as people with moderate incomes could now enjoy the luxuries of life. These plans are known as the backbone for the prosperity of the economy. As production increased, unemployment decreased and almost diminished.
Number of Millionaires
Today the word millionaire may not mean much to us but at that time being a millionaire was a big deal. The value of money was much higher than it is now. Not many people were millionaires. In 1926 there were two hundred and seven Americans who earned more than a million dollars a year. The growth was more than 150 per cent in two years. In 1921 only twenty one people earned a million dollars a year, in 1924 only seventy five people earned a million dollars a year, while the number went to two hundred and seven in just two years.
In 1927 there were 15000 millionaires, estimation and at least one billionaire. When people started making so much money they wanted to live in the most posh area, they started moving in to apartments on Park Avenue which they decorated and furnished with antiques and expensive paintings. The price of land increased and houses became more expensive, it eventually resulted in a never ending upward spiral. The rent of one room in the exclusive section of this Avenue is $ 1500 per year and this is an average. The Avenue spent $280,000,000 a year. This place was the heaven of America. (1920-30.com)
Salaries of Executives
Since the 1920’s were a time period in which there was plenty of money and finance, the salaries of executives working in banks increased by large amounts. This increased the gap between the rich and the poor, the have and the have-nots. Banks made a lot of money because there were many corporations who required loans to buy each other out or to merge together.
General Motors came up with a plan to make their top executives special partners. This meant that they would be able to purchase common stock in the company at lower prices. Being a shareholder meant that they would get a share of the profits. The idea was that they would take personal interest in their job and try to do the best so that the company over all can do well as they had a vested interest.
In 1926 there was a sharp increase in bank stock prices. Many organizations had bonus policies and would give these bonuses to their employees at different times of the year. In 1926, the Christmas bonus distribution was considered the most generous distribution ever made. (1920-30.com)
Read which best describes what people could buy on credit in the 1920s?
There was much improvement in the life style of the people but this was the period in which the rich became richer and the poor became poorer. Those people who did not live in cities experienced droughts and because of this many people migrated to the cities. In 1926, the Department of Agriculture calculated the figure to be around one million people. All these improvements and inventions have a downside which is visible now. At that time we were only reaping the benefits.
- Boom and Bust in the U.S. and World Economies, 2005, http://1920-30.com/business/
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