20 Century

Created 2/3/1997
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Slouching Towards Utopia?: The Economic History of the Twentieth Century

-XIII. The Roaring Twenties-


J. Bradford DeLong

University of California at Berkeley and NBER


February 1997


The end of World War I saw the United States retreat into isolation. The Senate refused to ratify the Versailles Peace Treaty that ended World War I. The U.S. failed to join the League of Nations--the international organization that was the less-successful interwar predecessor of the United Nations. The U.S. raised tariffs early in the 1920s (although not to levels that appreciably discouraged imports). Most important, perhaps, the 1920s saw he end of free immigration into the United States. Migration from Asia had been restricted for several generations. Migration from Africa had never been an issue. But up until the mid-1920s migration from Europe had been unrestricted.

More than 1.2 million immigrants had come to the U.S. in 1914. But once the immigration restrictions of the 1920s took effect, the overall total was fixed at only 160,000 or so immigrants a year. Moreover, different nations had different quotas. The quotas for immigrants from northern and western Europe were more than ample for the demand. The quotas for immigrants from southern and eastern Europe were very small.

The United States tried to pretend that the rest of the world did not really exist. Its people turned inward, and they found that they had plenty to do. For in the 1920s the United States became a modern middle-class economy of radios, consumer appliances, automobiles and suburbs. Nearly thirty million motor vehicles were on the road in 1929, one for every five residents of the country. Mass production had made the post-World War I United States the richest society the world had ever seen.

Mass Production

Begin with the "American system of manufactures." In the middle of the nineteenth century English engineers viewing production on the Western side of the Atlantic Ocean noticed some regularities in the way Americans seemed to do things. Their manufacturing industries made simpler and rougher goods, used much less skilled labor, and seemed to incorporate much more of the knowledge needed to run the process of production into machines and organizations--leaving much less in skilled workers' brains and hands.

Some of this was simply economizing on the relevant margin. In America skilled workers were exceedingly scarce, and it seemed worthwhile to follow production strategies that used skilled workers as little as possible. Some of this was finding new and more productive ways of doing things: ways that would have been profitable for British, or other manufacturers, even facing lower costs for skilled labor, to adopt.

Mass production, as it was developed in the United States in the early years of the twentieth century, was the carrying of the American system on to its logical extreme. Henry Ford planned large scale production of his Model N in 1905 to reduce expensive skilled work to as small a part of production as possible.

Ford minimized his costs by building a capital intensive plant that was very good at building automobiles, and not for building anything else. The increase in capital intensity increased the potential risk. The productivity and profitability of the Ford plant depended on a high rate of production. Anything that threatened the pace of production--union strike or anarchist sabotage--threatened to be very expensive. Ford could employ unskilled workers in jobs that had previously required highly skilled craftsmen, but only if he kept his workforce happy.

Moreover, in "moving the work to the men" by means of the assembly line, a second fundamental tent of mass production, the Ford engineers found a method to speed up the slow men and slow down the fast men.

This was, originally, an unintended benefit of mass production: the factory considered as a machine would monitor the progress of its human elements, and immediately signal where a unit was not accomplishing its job satisfactorily by the buildup of work by that station--a process undergone by Charlie Chaplin in Modern Times. The pace of work could be increased. Unskilled workers could be substituted for skilled labor. The task of management was made much simpler: the assembly line forced the pace of the slower workers and made it obvious where bottleneks were occurring. Fixed overhead costs were spread out over larger and larger volumes of production, thus lower and lower prices became possible.

The same set of forces can be seen at work in other industries as well. For example, Theodore N. Vail, President of American Telephone and Telegraph, argued in the 1908 AT&T Annual Report that the telephone business exhibited enormous economies of scale: "The particular circuit connecting any subscriber with the exchange is what might be termed a convenience to that particular subscriber, but a necessity to all other subscribers. It is the ability to communicate with others that makes the exchange valuable." The realization of these economies of scale required the highest output, and the lowest practicible prices to make sure that the output could be sold.

Vail distinguished two different competitive strategies: "Net revenue can be produced in two ways: by a large percentage of profit on a small business, or a small percentage of profit on a large business." And in America the second was best:

...with a large population with large potentialities, the experience of all industrial and utility enterprises has been that it adds to the permanency and undisturbed enjoyment of a business, as well as to the profits, if the prices are put at such a point as will create a maximum consumption at a small percentage of profits."

This strategy--invest heavily in fixed capital, try to produce the maximum output at low prices, and use the productive expertise gained to forge technological leadership and lowest cost positions--was to become characteristic of American industry throughout the twentieth century. It was made possible because half of North America was the single economic unit of the United States. With no obstacles to shipping commodities off of state lines, the possibilities of benefitting from a low price-high volume strategy were much greater than in Europe, especially in the interwar years of active trade restrictions.

Motor Vehicle Production (Thousands)

Year United States Canada France United Kingdom Germany Italy Czechoslovakia Russia
1907 45 3 25 12 4 0 0 0
1913 485 15 45 34 14 2 0 0
1924 3504 135 145 133 18 35 2 0
1928 4359 242 210 212 90 55 13 1
1935 3971 173 165 404 240 44 10 97

In the labor history literature, the adoption of the American system is often called deskilling. Knowledge of how to run the factory and the production process is taken out of the hands of skilled craftsmen and put into the hands of the managers and the machine makers. Jobs become more boring and more alienating. And wages fall. Historians' accounts of American industrialization often see the coming of mass production as a fight between the process of deskilling, tending to lower wages and make the distribution of income more unequal, and the process of unionization and collective solidarity, which is seen as powerful enough in the end to keep wages from falling.

But high wages for skilled craftworkers who have relatively low productivity implies high prices--and relatively low standards of living--for everyone else. By contrast, "deskilling" opens jobs that are relatively high-paid (albeit not as high-paid as the original craftwork jobs) to people who were outside the magic circle beforehand: unskilled farm laborers, immigrants, minorities, and women now have more options on the production side. Most important, higher productivity leads to lower product prices--massively expanding options on the consumption side as well.

And the deskilled, repetitive, assembly-line jobs were not low-paying jobs.

Henry Ford would have been happy if he could have found qualified workers for his assembly lines at low rates of pay. But he could not. Work on Ford's emerging assembly line was brutal. Workers paid the standard wages for unskilled labor at Ford's Detroit factory--a little less than $2.00 a day--quit at astonishing rates. In one year, 1913, Ford had an average annual labor force of 13,600 and yet 50,400 people quit or were fired.

Ford's workers-sped--up, automated, short-term, alienated, and about to quit--seemed obvious fodder for recruitment into the International Workers of the World, and Ford's profits were very vulnerable to IWW-style wildcat action.


Labor Force Separations and the Five Dollar Day at Ford

Year 1913 1914 1915
Labor Force 13,623 12,115 18,028
Total Leaving 50,448 6,508 2,931
Annual Turnover Rate 370% 54% 16%


39,575 5,199 2,871


2,383 385 23


8,490 926 27

Ford's solution was a massive increase in wages: to $5.00 a day for unskilled workers whose family circumstances and deportment satisfied Ford. By 1915 annual turnover was down to 16%, from 370% before the raise. Many to whom Ford jobs had not been worth keeping at $1.75 a day found the assembly line more-than-bearable for $5.00 a day. Many more linedup outside the Ford factory for chances to work at what appeared to them to be (and, for those who did not mind the pace of the assembly line much, was) an incredible boondoggle of a job.

Ford became a celebrity, and a symbol. This man was using the extraordinary productivity of modern manufacturing not (or not just) to make a fortune for himself, but to instantly raise his unskilled employees into the comfort of the middle class. Mass production, as some nameless publicist began to call it, offered the prospect of a ride to utopia via technology alone.

Was the five dollar day good business practice for Ford? Or was his company so profitable that he could afford a few highly unprofitable business practices and still flourish. There are two reasons why Henry Ford might have gotten more than his money's worth out of the $5.00 day--gotten more than an extra $3.25 a day of valuable work out of his employees in exchange for their massive raises.

The first is that an inattentive or sullen worker could disrupt a mass production assembly line and lose large amounts in profits. Workers paid $5.00 a day when the prevailing wage at the next job they would get was less than half that would be eager not to get fired. Higher-than-market wages induce high effort, because the job becomes a valuable asset for the worker. By tripling his workers' wages, the company could ask its workers to become for eight hours a day a part of the production machine that the Ford engineers had designed and refined. The five dollar day assured the company that the essential human appendages to this machine would always be present.

The second is that an assembly line is very vulnerable to "direct action." It is easy to sabotage--a word derived from the sabot, the wooden shoes of northern France and Belgium, that could be thrown into the works and jam the textile machinery. Ford feared the American Federation of Labor's more radical union competitor: the Industrial Workers of the World. By raising the stakes that workers had at risk in any shut down of Ford's operations, he made it less likely that strikes and sabotage would hit his company.

The automobile and other products of mass production quickly diffused throughout America. Manufacturers then faced a problem: once the market had been saturated, replacement demand was lower than demand during the rapid expansion of the market. Producers faced the problem of figuring out how to add value to the product, so that consumers would not simply "replace" but would "upgrade." Since you can't sell them the good a second time, you have to to figure out some way to sell customers an improved good.

This was a big problem for Ford.

If the Model T was supposed to be changeless, how can the company use "improvement" as a selling point? "New and improved" was perhaps the one advertising slogan that Ford could not use-especially because Henry Ford adhered to changelessness for ideological as well as production-based reasons. This became an especially knotty problem because consumers did, it turned out, want novelty. They were willing to pay a premium to have a car, not of their own, but a car not identical to every other car on the street.

As the twentieth century passed, U.S. manufacturing turned its skill to making differentiated products-not all the same-using mass production. The first to do this was the management team, headed by Alfred P. Sloan, at General Motors. Make the guts of the cars the same--that is, sell to everyone as many Chevrolet parts, made in extraordinarily long production runs to take full advantage of economies of scale. Put the guts in differently colored boxes, and change the boxes--so that someone who wants to stay up to date has to buy a new car relatively rapidly. Rely on advertising to create different images and different auras surrounding the different lines of cars.

Now it is natural to be of two minds about this surge of product differentiation. It seems wasteful--sacrificing potential economies of scale for diversity--and deceptive: Coca-Cola doesn't "really" "add life," does it? Wearing celebrity-brand sneakers while listening to one's walkman does not "really" bring one closer to the lifestyles of rich and famous celebrities than does listening barefoot, does it? This echoes George Orwell's complaint: that the cheap luxuries of the modern world create the illusion that you have gotten something valuable and worthwhile for your money. But in reality, as opposed to in front of the veil of illusion, it just is not true.

The only real benefit to buying expensive brand-name sneakers is that they give you explicit permission to dream certain dreams and have certain fantasies. Yet dreams are, or should be, free: for the mind is its own place, and can make a heaven of hell, or a hell of heaven.

On the other hand, product differentiation is popular: consumers are happy to be able to order a blue car with a sunroof. Given the immense wealth of the industrial economies, why not use some of it to create more color and variety? The anti-utopias of the twentieth century, from Modern Times to We, Brave New the World, and Nineteen Eighty Four, terrify readers by picturing society as a colorless grey inhumanity in which even the smallest of individual differences is removed, and everything the same: mass-produced. To be able to achieve almost all of the gains of mass production without imposing the cost of endless uniformity may truly be a major achievement.

The diffusion of high-productivity "mass production" industries from the rich industrial core to the poor periphery took place surprisingly slowly. One would have thought that mass production industries should have been vulnerable to foreign competition from other, lower wage countries. If Ford can redesign production so that unskilled assembly line workers do what skilled craftsmen used to do, why can't Ford also--or someone else--redesign production so that it can be carried out by low wage Peruvians or Poles or Kenyans rather than by Americans, who are extraordinarily expensive labor by world standards?

Yett mass production diffused slowly even within the developed world only. Ford's plants in Britain had difficulty obtaining even half the labor productivity of Ford plants in the United States. There were even difficulties in the diffusion of mass production throughout the United States. Only one firm--General Motors--could even come close to matching Ford's productivity levels in the 1920s and the 1930s. And General Motors found its transition to mass production eased by its ability to hire the production management team that had invented mass production at Ford's Highland Park plant as its individual members, one after the other, fell out of favor with Henry Ford.

Mass Consumption

The flip side of mass production was mass consumption: the creation of America as a middle-class society, made up increasingly of people living in suburban houses, and commuting and shopping using automobiles.

The speed with which the products of mass production diffused through America was astonishing: not just automobiles but also washing machines, refrigerators, electric irons, electric and gas stoves--a whole host of inventions and technologies that greatly transformed that part of economic life that takes place within the household. For one of the major consequences of mass production was the building-up of the stock of capital goods for within-the-home production.

As the historian Ruth Schwartz Cowan has written:

...kitchens are as much a locus for industrialized work as factories and coal mines are, and washing machines and microwave ovens are as much a product of industrialization as are automobiles and pocket calculators. A woman who is placing a frozen prepared dinner into a microwave oven is involved in a work process that is as different from her grandmother's methods of cooking as building a carriage from scratch difers from turning bolts on an automobile assembly line; an electric range is as different from a hearth as a pneumatic drill is from a pick and shovel...

The incandescent light bulb was invented by Thomas Edison in 1879. By 1882 New York city had its first central generating station. By 1910 the alternating-current electric motor had become a low-cost provider of mechanical power that could be made small enough to run a fan (or large enough to power a locomotive). Eight percent of American households were wired for electricity in 1907; 35 percent were wired by 1920; 80 percent were wired by the beginning of World War II.

Thus the 1920s were the decade of consumer appliances: electric sewing machines, electric washing machines, electic vacuum cleaners, electric dishwashers, electric mixers, electric stoves, electric toasters, electric irons, electric hot-water heaters, electric space heaters, and electric refrigerators. By the start of World War II 79 percent of households had electric irons; half had washing machines, half had refrigerators, and half had vacuum cleaners.

An important novelty lay in the rapid spread of a new form of purchase: installment credit. The major consumer appliances had long lifetimes, and relatively high prices. Businesses found that their potential markets were much larger if they were willing to loan a large portion of the purchase price to the consumer, for one or five years.

United States: Approximate Hours of Housework per Week, 1900-1975

Year Meals and Dishwashing Laundry General Cleaning
1900 44 7 7
1925 30 5 9
1975 15 1 7

One consequence of the consumer durables revolution was to turn doing laundry from a task that took up nearly one full day a week to a task that took up a considerably smaller share of time. But the biggest changes in within-household production appear to have been the result of the dishwasher and the modern stove, on the one hand, and the growth of the food processing industry, on the other. They have cut the amount of time spent on food preparation and cleanup by roughly two-thirds over the past century.

Put the consumer durables revolution together with the reduction in family size caused by the demographic transition, and modern feminism becomes possible: keeping the household running is no longer a more-than-fulltime task for an adult. However, the modern industrial world could have further economized on "housework," but did not. Turn-of-the-century feminists and utopians had anticipated communal kitchens; communal laundries; cleaning done in an organized way by collective teams. Over the course of the twentieth century a few steps were to be taken in that direction: restaurants flourished, as did services that offered one or two days a week of cleaning. But laundromats were reserved for those living in small apartments. And restaurant meals remained a small part of meals eaten at home.

More and more over the twentieth century, people in rich industrial societies chose--or others in their households chose for them--private life. What relative opulence bought was not further economizing on housework, but rather more separation of the private from the social: houses with lawns so that one did not have to hear the neighbors through the walls, with their own washing machines, and with refrigerators and stoves capable of storing and cooking an enormous variety of foods. No utilitarian social planner would have allowed such a diversion of resources into infrequently-used stoves, washing machines, and dining rooms. Indeed, in "institutions"--whether army barracks, residential schools, prisons, or hospitals--utilitarian social planners did not. Yet where they had the choice, the middle classes in industrial economies cherished their suburban privacy, guarded it closely, and sunk increasingly large sums into embellishing it.


From the 1890s a substantial minority of Americans believed that the country had somehow taken a wrong turn. There was little socialism in the United States. Farmers feared the language of nationalization; immigrants were too busy taking advantage of living standards twice or more those of their relatives left behind in Europe; there was no entrenched landed aristocracy to rebel against; the principal political demand of the socialists--a free and equal vote--had been granted (for white males) since Andrew Jackson's day in the 1830s.

Yet the feeling grew that Ameria was no longer an open, equal society of potential mobility but a place where they were in control.

"They control the people with the people's own money." So Louis Brandeis, strong Democratic political activist, wrote of the turn of the century financiers. He saw J.P. Morgan and company as controlling the American economy, deciding which companies would flourish and which companies would shut down, through their domination of the commanding heights of finance.

There was reason for the progressives to worry. The rapid growth of managerial enterprises, the rapid increase in the "optimal scale" of continuous process manufacturing plants, and the realization of economies of distribution together transformed many American industries into oligopolies. When only a few firms dominated an industry, firms could protect themselves against "cut-throat" or "ruinous" competition either through collusion, or through mergers that would end in monopolization. Naomi Lamoreaux has analyzed 93 turn-of-the-century mergers of the American economy: 46% resulted in firms that controlled at least 70 percent of their product's market.

In 1890 the American Congress passed the Sherman Antitrust Act. But the Sherman Act did little to affect industial structure. In response to antitrust judgments, a few companies--the Northern Securities Company, and the Standard Oil Company of New Jersey, and a few others--were divided into their subsidiaries. But industrial consolidation, oligopoly, and big business run by managers became the rule in the manufacturing sectors not just of American but of the British, the German, and other industrialized economies as well..

Brandeis had relatively simple answers to the problems of industrializing America. Regulation of hours and working conditions to prevent bosses from exploiting workers' hunger for a job. Strong anticorruption drives to clean up municipal governments. The separation of banking from finance so that the bankers who collected the savings of the people through the acceptance of deposits would be unable to use those savings to increase their bargaining power vis-a-vis the managers of American enterprise.

It is doubtful that Louis Brandeis's proposed solution was any solution at all. Large-scale businesses borrow from banks, true. But remove some power to control and infiuence the managers of large-scale enterprises that borrow from the bankers, and where does it go? It fiows to the managers of the oligopolies and the monopolies that no longer have to look over their shoulders to make sure that Wall Street is satisfied; it does not fiow to the "people." Even before Brandeis's program was put into effect in the 1930s, Adolf Berle and Gardiner Means were warning of the unchecked and unaccountable power of the self-appointing managers of large corporations.

But Brandeis's cure was a response to a real disease. For the United States as of the turn of the twentieth century was a much more economically and socially unequal place than it had been even thirty years before.

On the eve of the American Revolution, the United States-to-be had been a relatively egalitarian society. The richest one percent of households owned perhaps fifteen percent of the total wealth in the economy-a very low value for such an inequality statistic. Even by the immediae aftermath of the Civil War wealth was still not that concentrated: the top one percent of households appear to have had a little more than a quarter of the wealth of the country.

By 1900, however, the U.S. had become the Gilded Age country of industrial princes and immigrants living in tenements of our political memory. On the one hand, Andrew Carnegie building the largest mansion in Newport, Rhode Island with gold water faucets. On the other hand, 146 largely-immigrant workers dying in the 1911 Triangle Shirtwaist Factory fire in Manhattan because the exits had been locked to keep workers from taking fabric out of the building for their own clothes.

Surveys suggest that in 1929 the richest one percent of U.S. households held something like 45 percent of national wealth, and that the concentration of wealth had been sharply rising in the 1920s. We strongly suspect that World War I had seen substantial deconcentration, as infiation eroded the value of bondholders' wealth and as high demand for labor boosted workers' earnings. It is my guess that the second was stronger than the first; that the concentration of wealth was eroded more during World War I than it was boosted in the 1920s, and that the concentration of wealth in the United States peaked sometime in the twenty years before World War I, with the richest one percent of households owning some 50% or so of total national wealth.

Attempts to count the wealth of the merchant princes themselves reinforce the suspicion that the pre-World War I U.S. was more unequal than at any time before or since. John D. Rockefeller was some eight times richer relative to the wages of the average American of his day than William H. Gates is today. (And Rockefeller was some twenty times richer relative to the total size of the U.S. economy

A country of immigrants and plutocrats is very different from the country of yeoman farmers that the United States had been in its Founding Fathers' imagination, and in large part in reality, in the late eighteenth century. Alexis de Tocqueville, a keen-eyed commentator on American society in the first half of the nineteenth century, had feared the growth of such a class of plutocrats, such an "aristocracy of manufacturers":

The territorial aristocracy of past ages was obliged by law, or thought itself obliged by cutom, to come to the help of its servants and relieve their distress. But the industrial aristocracy of our day, when it has impoverished and brutalized the men it uses, abandons them in time of crisis to public charity to feed them.... Between workman and master there are frequent relations but no true association.

I think that, generally speaking, the manufacturing aristocracy which we see rising before our eyes is one of the hardest that have appeared on the earth....

In the United States the rising concentration of wealth provoked a widespread feeling that something had gone wrong with the country's development. The rich (and many of the native-born not-so-rich) blamed foreigners: aliens born in China, Japan, Italy, Spain, Poland, and Russia who were incapable of speaking English, or understanding American values, or contributing to American society. Many of the middle class, especially the farmers, blamed the rich, the easterners, and the bankers. The Populists of the 1890s blamed the eastern bankers and the gold standard. The Progressives sought reforms to try to diminish the power of what they saw as a wealthy-would be aristocracy.

But the Populists and the Progressives remained minority political currents in America until the coming of the Great Depression. In the meantime, the voters continued to elect Republican presidents who were more-or-less satisfied with American economic and social developments, and who believed that "the business of America is business." The United States did very well at business in the 1920s. Industrial production in 1929 was nearly twice what it had been in 1913.

The managers who ran Americas firms and the politicians who got elected were not oblivious to the Progressive challenge. Scared of what unionization or a shift to left-wing politics might bring, and concerned about the welfare of their workers, American business in the 1920s developed "welfare capitalism." Social-work professionals employed by the firm provided counseling and visited the homes of workers. Businesses offered stock-purchase plans to help workers save for retirement, and insurance: sickness, accident, and life insurance.

Welfare capitalism appears to have worked as long as relative prosperity continued: the welfare of workers covered rose. Welfare capitalism appears to have worked for the bosses as well: the 1920s saw rapid erosion of union membership in the United States. But when the Great Depression came, the availability of the Populist and Progressive agendas made the shift in American politics in response to the depression rapid and substantial.

from Bryan, Bryan, Bryan, Bryan

by Vachel Lindsay

I brag and chant of Bryan, Bryan, Bryan,
Candidate for president who sketched a silver Zion...
There were truths eternal in the gab and tittle-tattle,
There were real heads broken in the fustian and the rattle,
There were real lines drawn;
Not the silver and the gold,
But Nebraska's cry went eastward against the dour and the old,
The mean and the cold....

Oh, the longhorns of Texas,
The jay hawks from Kansas,
The plop-eyed bungaro and giant gassicus,
The varmint, chipmunk, bugabo,
The horned-toad, prarie-dog, and ballyhoo,
From all the newborn state arow...

And all these in their helpless days
By the dour East oppressed,
Mean paternalism
Making their mistakes for them,
Crucifying half the West,
Till the whole Atlantic coast
Seemed a giant spider' nest....

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20 Century

Created 2/3/1997
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Associate Professor of Economics Brad DeLong, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax