ECONOMIC TRENDS OF THE 1920S

 

[In 1928 the National Bureau of Economic Research issued a report entitled Recent Eco­nomic Changes in the United States, excerpts of which follow.]

 

How the United States managed to attain a higher per capita income in 1922-1927 than ever before, though conditions in most other countries were not favorable, and though its basic industry, agriculture, was depressed, is the outstanding problem of the cycles of 1921-1924, 1924-1927, and 1927 to date. . . . Many partial an­swers to this question ... may be con­densed into one: since 1921, Americans have applied intelligence to the day's work more effectively than ever before.... The old process of putting science into industry has been followed more intensively than before; it has been supplemented by ten­tative efforts to put science into business management, trade-union policy, and gov­ernment administration.

 

Concrete instances of technical improve­ments in many mining, metallurgical, and fabricating processes are given in the chapters on industry. The remarkable re­sults achieved are demonstrated statisti­cally from census data showing output per worker. Similar, though less striking, instances appear in . . . construction. Without help from any extraordinary invention, the railroads also have attained a higher level of operating efficiency. In farming there is an intriguing report of new ma-chines and new methods coming into use. Here too, the record of average output per worker shows considerable gains.

 

All this means that since 1921 Americans have found ways of producing more phys­ical goods per hour of labor than before. They have received larger average incomes because they have produced more com­modities and services. That is true in the aggregate, although not all who have con­tributed to the increase in physical produc­tion have shared in the increase of real income….

 

While the details of the latest technical advances always possess thrilling interest, perhaps there is more of promise for the future in...recent changes in economic policy. The efforts to apply scientific methods to such matters are in an early stage of development. The sciences which underlie these efforts--psychology, sociol­ogy, economics--are far less advanced than physics and chemistry. The experts who are making the applications--person­nel managers, advertising specialists, sales directors, business economists and statis­ticians--are less rigorously trained than engineers. It is even harder to measure the results they achieve than to determine what difference a new machine makes in unit costs. Nor are business executives so generally convinced of the practical value of the rather intangible services which the new professions can render as they are of the indispensability of engineering advice. Yet it is conceivable that applications of the social sciences, now in their tentative stage, will grow into contributions of great moment to economic welfare. Certainly…many enterprising business concerns and some. enterprising trade unions are trying new policies, and often getting results which they deem good.

 

Perhaps none of the changes reported here will prove more important in the long run than the change in the economic the­ories on which the American Federation of Labor and certain outside unions are acting. That organizations of wage earners should grasp the relations between pro­ductivity and wages, and that they should take the initiative in pressing constructive plans for increasing efficiency upon em­ployers, is not wholly without precedent; but the spread of such ideas and the vigor with which they are acted on by large organizations must startle those who have believed that trade unions are brakes upon economic progress.

 

Scarcely less significant is the report from the employing side…. The art of business management turned a corner in 1921, cultivating since then more skillful understanding of the whole situation and nicer adjustment of means to the immedi­ate environment. Numerous corporations and some trade associations are maintain­ing research bureaus of their own. Among the managerial devices experimented with, are coordinated staffs in place of one "big boss," bonus payments to executives and "incentive wages" for the rank and file, operating budgets, forecasts of business conditions, close inventory control, person­nel management and employee representa­tion. Most of these devices are attempts to understand and to utilize the psychological forces which control human behavior, or the economic forces which control business activity.  “There is today not only more production per man, more wages per man and more horsepower per man; there is also more management per man.". . . Even marketing is being permeated by applied psychology. Costly investigations of "con­sumer appeal," of advertising "pull," of "sales resistance"... show that sales man­agers are trying to base their planning upon factual studies of human behavior. And the rapid spread of chain stores and of installment selling show that marketing methods are no more standing still than is industrial technique....

 

Among the consequences which im­provements in industrial technique or in business methods produce in an individ­ualistic state, are hardships of various kinds. The victims are partly business com­petitors who are a bit slow in adopting new methods; partly industries or geo­graphic regions affected indirectly; partly individuals who find their services no longer needed. To follow all the compli­cated difficulties produced by recent eco­nomic advances in the United States is out of the question; but a few chains of cause and effect may be traced link by link....

 

The technical advances of recent years in the United States have been largely advances in the direction of more econom­ical production. A greater volume of goods has been turned out at lower costs per unit. Now larger supplies sent to market tend to depress prices. . . . The remarkable fact is that prices sagged through the pros­perous year 1926. Taking the whole period from 1922 to 1927, the trend has been a gently declining one. Prices at wholesale have fallen at the rate of 0.1 per cent per annum....

 

Sagging prices make it harder to conduct business with profit because many of the expenses of an enterprise are fixed by long contracts or by understandings hard to alter, and cannot be cut to offset a reduction in selling rates. . . . Concerns in the van of technical progress have done handsomely. But the prices at which they could market their large outputs with profit to themselves have meant loss and even failure to less aggressive rivals.... The average number of failures in 1922-1927 has actually exceeded the number in 1921, but the total and the average lia­bilities have grown smaller....

 

Scarcely less characteristic of our pe­riod than unit-cost reductions is the rapid expansion in the production and sale of products little used or wholly unknown a generation or even a decade ago. Among consumers' goods, the conspicuous in-stances are automobiles, radios and rayon. But the list includes also oil-burning fur­naces, gas stoves, household electrical ap­pliances in great variety, automobile ac­cessories, antifreezing mixtures, cigarette lighters, propeller pencils, wrist watches, airplanes, and what not. Among producers' goods we have the truck and the tractor competing with the horse and the mule, reinforced concrete competing with brick and lumber, the high-tension line com­peting with the steam engine, fuel oil com­peting with coal, not to mention excavating machines, belt conveyors, paint sprayers, and "automatics" of many sorts competing with manual labor.

 

Changes in taste are in large part merely the consumers' response to the solicitation of novel products, effectively presented by advertising. But that is not all of the story; the consumer is free to choose what he likes among the vociferous offerings, and sometimes reveals traces of initiative.... Americans are consuming fewer calories per capita; they are eating less wheat and corn but more dairy products, vegetable oils, sugar, fresh vegetables and fruit. More families than ever before are sending their sons and daughters to college-surely that is not a triumph of "high-powered" sales­manship. Young children, girls and women, are wearing lighter and fewer clothes. The short skirt, the low shoe, the silk or rayon stocking, "athletic" underwear, the soft collar, sporting suits and sporting goods, have an appeal which makers of rival, articles have not been able to overcome. And, in a sense, every consumers' good, from college to candy, is a rival of every other con­sumers' good, besides being a rival of the savings bank.

 

“When the makers of one product get a larger slice of the consumer’s dollar, the slices left for the makers of other products get smaller.” This way of accounting for the hardships met by certain long-estab­lished industries in 1922-1927, such, for example, as the leather and woolen trades, is popular and sound, so far as it goes. But it does not take account of the fact that desire for new goods, or the pressure of installment purchases once made, may lead people to work harder or more stead­ily, and so get more dollars to spend. Pre­sumably the enticements of automobiles and radios, of wrist watches and electric refrigerators, of correspondence courses and college, have steadied many youths, set many girls hunting for jobs and kept many fathers of families to the mark. Also a considerable part of the country's former bill for intoxicants has been available to spend in other ways. . . . Consumption per capita has increased in volume to match the increased per capita output of con­sumers’ goods taken altogether. Yet the increase in consumption has not been rapid enough to prevent shifts in the kind of goods bought from pressing hard upon the makers of articles waning in popular favor.:..

 

Among all the hardships imposed by increasing efficiency, most publicity has been given to the decline in the number of wage earners employed by factories. That is a matter of the gravest concern in view of the millions of families affected or threatened by the change, and in view of their slender resources. To it special at­tention has been paid in this investigation.

 

The new phrase coined to describe what is happening, "technological unemploy­ment," designates nothing new in the facts, though the numbers affected may be large beyond precedent....

 

To recall these familiar facts should not diminish by one jot our rating of the hardships suffered by men who are thrown out of jobs. They and their families often undergo severe privation before new em­ployment can be found; the new jobs may pay less than the old or be less suitable; too often the displaced man never finds a new opening. Technical progress is con­tinually made at cost to individuals who have committed no fault and committed no avoidable error of judgment. No organ­ized plan has been evolved for preventing such hardships, aside from the schemes devised by some trade unions for tiding their members over mechanical revolutions in their crafts….

 

Forecasting the future is no part of the present task. But we should not close the record without noting that recent develop­ments may appear less satisfactory in ret­rospect than they appear at present.

 

Even on the face of affairs, all is not well. .. . The condition of agriculture, the volume of unemployment, the textile trades, coal mining, the leather industries, present grave problems not only to the people immediately concerned, but also to their fellow citizens. How rapidly these conditions will mend, we do not know. Some may grow worse.

 

Nor can we be sure that the industries now prosperous will prolong indefinitely their recent record of stability. ...If we are to maintain business prosperity, we must continue to earn it month after month and year after year by intelligent effort. The incomes disbursed to consumers, and to wage earners in particular, must be in-creased on a scale sufficient to pay for the swelling volume of consumers' goods sent to market. The credit structure must be kept in due adjustment to the earnings of business enterprises. Security prices must not outrun prospective profits capitalized at the going rate of interest. Commodity stocks must be held in line with current sales. Over-commitments of all sorts must be avoided. The building of new industrial equipment must be not overrapid. These and the similar matters which might b mentioned present delicate problems o management which will find their practical solutions in the daily decisions of business executives.