The Prosperity Decade, 1921–1928 (Overview)

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The period of U.S. history between 1921 and 1929, known as the Era of Prosperity, was dominated by the Republicans in the national government. The three Republican presidents who served during that time were: Warren G. Harding (19211923), Calvin Coolidge (19231929), and Herbert C. Hoover (19291933). Harding was incompetent and his administration was corrupt. He died in office (August 2, 1923) and was succeeded by Calvin Coolidge who served for nearly six years. Coolidge came into office with a reputation for honesty that he maintained throughout his administration. Very popular, he was reelected to his own term of office in 1924; he could probably have run again successfully in 1928, however, he chose to step down. He was succeeded by Hoover who, since 1921, served as Secretary of Commerce in both Harding's and Coolidge's administrations. At first Hoover was very popular but the financial collapse of 1929 destroyed his reputation.

Businessmen wanted lower taxes and higher tariffs and the Republicans tried to accommodate them. In 1921 the new Secretary of the Treasury, Andrew W. Mellon, recommended a tax plan that included repeal of the wartime excess profits tax and an income tax reduction of nearly 40 percent. However, he had to compromise with Congress; the bill that finally passed reduced the maximum tax rate by 17 percent and raised corporate taxes by 2.5 percent. Mellon served all three administrations. By the end of the decade he had reduced the income tax rate by approximately 30 percent.

On May 11, 1924, Congress enacted a law known as the Emergency Tariff. It raised rates on meat and farm products. Then, in September 1922, Congress passed the Fordney-McCumber Tariff. This measure again raised tariff rates on farm products and also protected chemicals, silk and rayon textiles, toys, china, cutlery, and guns. This law remained in effect until 1930 when it was replaced by the Smoot-Hawley Tariff (which, again, raised rates substantially). By then the average on all imports was 40 percent.

The years following World War I (19141918) were marked by a declining birthrate in America. The number of children born fell from 23.7 per thousand in 1920, to 18.9 in 1930. Declining birthrates coupled with immigrant restriction led to an overall decline in population growth. However, this was not the only significant demographic feature of the period. Rural population declined and cities grew. Between 1920 and 1930 some six million people migrated from the farm to the city. By the end of the decade only 44 percent of Americans lived in rural areas (farms and small towns). Among those who moved to the cities were large numbers of African Americans. Eighty-nine percent of all African Americans lived in the South in 1910 but by 1930 the number had been reduced by 10 percent.

The overall economy during this period featured erratic shifts in profits and employment. During the World War I and immediately after it there was a production boom triggered by accelerated demand. Beginning in 1920, however, inflation gave way to a decline driven by the collapse of farm prices. Farmers had indulged in significant production increases during the war and now their markets were melting away. By the spring of 1921 the nation was in the throes of a full-fledged depression. Foreign trade was cut nearly in half, wholesale prices fell 24 percent, and unemployment neared 5,000,000. However recovery began in 1922 for most sectors of the economy (except agriculture); economic improvement continued with few reversals until 1929. It is mainly in comparison to the subsequent Great Depression that this decade is called the "Prosperity Decade."

Per capita income in the United States during the prosperous twenties rose from $620 in 1919 to $681 in 1929 (9 percent), while at the same time earnings increased by 26 percent. This trend was driven by large expansion in the construction industry and manufacturing; widespread confidence about the period seemed justified. However there were other indicators that suggested general trends were deceiving. These indicators revealed, among other things, a significant maldistribution of wealth. For example, corporate profits increased nearly 62 percent between 1923 and 1929, but workers' real income increased only 11 percent. Despite perceptions about the "Prosperity Decade," many people were not prosperous at all. A decent standard of living during that period required an annual income of $2,500, but 71 percent of all families had incomes below that figure.

Several industries which were barely in their infancy at the end of the war grew dramatically during the next decade. These included automobile, electric power, machinery and appliances, radio, aviation, and motion pictures industries. Measured by its social and economic impact, the automobile industry was easily the most important industry of the era. Automobile industry magnate Henry Ford (18631947) was the dominant leader of the industry. He perfected the Model T, a vehicle that practically anybody could afford. More importantly, he developed the moving assembly line which made production cheap and fast.

During the 1920s automobile production expanded dramatically from 1.5 million at the beginning of the decade to 4.8 million by the end. By 1929 the industry utilized 15 percent of all the steel and 80 percent of all the rubber production in the United States. Car manufacturers employed 7.1 percent of all the wage earners in the country and produced 12.7 percent of the value of all manufactured goods.

Electric power became the second most important economic interest in the country during the Era of Prosperity. By 1929 seventy percent of all homes had electric power. Widespread availability of electricity spurred the invention of new appliances such as irons, washing machines, vacuum cleaners and refrigerators.

Closely related to electric power was the radio industry. Until 1919 the federal government banned the private use of radio sets, but once the ban was lifted, the radio industry began its rapid growth. By 1929 forty percent of all American families had radio sets in their homes.

The aviation industry grew slowly in the first, few postwar years. Congress passed the Air Commerce Act in 1926, which gave control of commercial aviation to the Commerce Department; thus, the age of the aviation industry began. Secretary of Commerce Herbert Hoover (18741964) did all he could to promote the industry. Scheduled air service began in 1926 and by 1930 there were 122 airline companies in operation.

In 1896 the motion picture machine was invented by Thomas A. Edison (18471931); only seven years elapsed before production of the first "movie" with a story, The Great Train Robbery (1903). However, the motion picture industry really began in 1905 when admission to a projection house (5 cents) was first charged in Pittsburgh. The first theaters, called nickelodeons, were very popular. By 1907 there were 5,000 of them in all parts of the country. Over the next few years the technology improved dramatically and by World War I the large, ornate movie theater appeared. Sound and color were added by the end of the 1920s. By 1930 there were 23,000 theaters in the country with annual admissions revenue of $1.5 billion. The industry employed 325,000 people with a capital inventory of two billion dollars.

The 1920s (the Prosperity Decade) are often called the Age of Big Business. This is true not only because of the rapid expansion of industry but also because of numerous mergers which produced very large business entities. By 1929 two hundred corporations controlled 49 percent of all corporate wealth in the country and received 43 percent of all corporate income. There were only two monopolies by 1929in the sulfur and aluminum industriesbut there were many near monopolies or oligopolies (an oligopoly is an industry controlled by a very small number of participants).

When Congress passed the Clayton Anti-Trust Act in 1913 and simultaneously created the Federal Trade Commission (FTC), they had sought to end destructive competitive practices that had characterized business since the late nineteenth century. These practices had been largely abandoned by business in the 1920s; the rise of oligopolies had actually enhanced competition. Hence the goal of the government during this period was to encourage healthy competition. If that meant competition among a few, very large businesses which provided high quality goods and services to the people, so much the better. Critics, of course, charged that government had become the handmaid of business, but this was true only in a limited sense.

The American farmer suffered most from the depression of 19211922, and never fully recovered as did most other sectors of the economy. In 1919 farmers received 16 percent of the total national income. In 1929 they received only 8.8 percent.

Between 1921 and 1924 a non-partisan group in Congress known as the Farm Bloc worked aggressively on behalf of the farmers. They passed laws regulating the meat packers, the stockyards, and the grain exchanges, and they also created a system of governmentbacked credit for farmers. However, they did not address the real problemoverproduction. Congress tired to deal with this problem, but their efforts failed. Known as McNar-Haugen Bill, Congress approved a proposal to buy the surplus and sell it abroad. Farmers would then pay a tax on the part of the surplus they produced in order to finance the program. Although complicated, the plan might have worked, but it never became law because it was vetoed by President Coolidge.

Just before the Depression (192939) the Hoover administration passed the Agricultural Marketing Act (June 20, 1929). This law created the Federal Farm Board with a revolving fund of $500 million to be loaned to agricultural cooperatives so they could build warehouses and hold their members' products in case of a price decline. The Board was also authorized to stabilize prices through direct intervention in the market. The program was the most important effort yet attempted by the American government to stabilize and support agriculture. However, the Agricultural Marketing Act proved ineffective in the wake of the catastrophic economic collapse which began in 1929.

The country experienced a period of inflation just before the depression of 192122. This was the key factor in setting off a wave of strikes by means of which the American Federation of Labor (AFL) hoped to preserve wartime gains and expand the union movement. Some of these strikes succeeded, but there were others that failed and caused longterm damage to the labor movement. Among these were the great steel strike and the Boston Police Strike of 1919. In cases such as these, strike leaders were branded as radicals and public opinion turned against them.

Organized labor, contrary to the hopes of its leaders, did not grow during the 1920s-membership declined. The reasons for this include the absence of aggressive leadership in many of the unions coupled with the rise of a new concept called "welfare capitalism," which became popular in some industries. First promoted by Henry Ford, the idea was to seek cooperation rather than conflict between labor and management. This was to be accomplished by paying good wages, providing benefits like vacations, insurance, and retirement packages, and by listening to the workers' ideas. That this plan worked is reflected in the fact that AFL membership declined nearly 30 percent between 1920 and 1930.

The banking business and the stock market were practically unregulated during the 1920s and this led to considerable fluctuation in the world of finance. Many banks failed, particularly in rural areas dependent upon agriculture; conversely, numerous mergers occurred. Thus, while the number of banks declined by more than 5,700 between 1919 and 1929, their total resources increased spectacularly from $47.6 billion to $72 billion.

The way banks did business also changed. Before the war a commercial bank's chief function was to make short term loans to business and industry. But during the twenties most businesses were so profitable that they relied upon their own resources for expansion and current operating expenses. Hence the banks had large sums to invest in other ways. They increased their investments in stocks and bonds, increased loans against real estate, and loaned vast sums to stock brokers for speculative purposes. Bank loans to brokers against stocks and bonds totaled more than $8.5 billion by the fall of 1929. In addition, banks established their own investment affiliates and did their own speculating in the stock market. This progression continued as long as the market continued to boom as it did between 1926 and 1929, but the collapse, which came in the latter part of the year, took many banks with it. This was the dawn of the Great Depression and a new era in American economic history.

See also: Thomas Edison, Henry Ford, Andrew Mellon


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Chandler, Alfred Dupont. Strategy and Structure: Chapters in the History of the American Enterprise. Cambridge: M.I.T. Press, 1962.

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The Prosperity Decade, 1921–1928 (Overview)

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