New Goods and the Rise of the Middle Class The Roaring 20’s was a time where America seemed to be at it’s most prosperous. The American dream was not only to do well, but to over succeed and have a wealthy lifestyle. One technological innovation that laid the stepping‐stones for the 1920’s was the mass production of the automobile. At the beginning of the 1920’s the automobile was thought of as a luxury for the wealthy, but by the end of the decade over 60 percent of American families owned one. With such a large influence on the American economy, a lot of the American landscape was paved for the use of automobiles such as motels, road signs, gas stations and the Federal Aid Road Act of 1916, which committed the government to spending $75 million to pave mud roads. Another major development was the innovation of consumer credit or a system known as “buy now, pay later.” Instead of a consumer having to save up money in order to buy a product, they could immediately go out and buy the product by making a down payment and then paying the rest with an installment plan. This system greatly increased the demand side of consumer durable products such as vacuum cleaners, radios, and refrigerators. The supply side of durable products then matched the progression by creating technological innovations and using mass production, which lowered the cost of a given quality service for many consumer goods. The 1920’s was also exemplified by the passing of the Volstead Act in 1919, which prohibited the consumption of alcohol. The intention of the act was to increase the savings of the working/middle class and raise industrial productivity. In theory, the Volstead Act made sense but consequences would soon ensue based upon this decision. According to the first principle of economics, “people choose, and individual choices are the source of social outcomes.” There is no better case of this than that of the automobile. The automobile was so popular and such a major driving force of the 1920’s that the economy basically ran itself around the automobile. Since people were traveling more that means that they would be away from home and would need places to eat, drink, and sleep. As a result gas stations, restaurants, and motels basically sprung up overnight to meet the needs of the people that were traveling. Since 60 percent of American families owned a car, this was a huge source of potential income that people did not want to miss out on. With the widespread use of consumer credit, people’s choices were greatly affecting what producers were putting out on the market. Since people did not have to have a large source of income in order to get certain durable goods, sales of products such as radios and refrigerators skyrocketed. Annual refrigerator production expanded from 5,000 units in 1920 to nearly 1 million units in 1930. The increased purchasing of consumer durables also promoted growing volume of advertising. As a result, a large amount of advertising was put into newspapers and magazines that were heavily geared towards women. However, advertising was also put into the radio, which brought about the formation of the broadcasting companies NBC and CBS. The decision to prohibit the consumption of alcohol was meant to increase the productivity of workers and make society a better place, but what people soon realized was that there are sometimes unforeseen consequences and costs to their actions. According to the second principle of economics, “Choices impose costs”. When the prohibition of alcohol was ratified as the Eighteenth Amendment to the Constitution in 1920, it was widely supported by the middle class. However, the opinions would change, as the consequences would begin rear it’s ugly head. Crime soared in the 13 years prohibition was enacted even though there was a dramatic increase in the amount spent on enforcement from $6.3 million in 1921 to $13.4 million in 1930. Homicide rates rose and prohibition cases dominated the federal courts. And by the time prohibition was ended by the Twenty‐First Amendment in 1933, the view of the public on the results of prohibition was greatly changed. Because of the increasing popularity of a consumer credit system, it seemed that the economy was booming due to the increase in economic demand and the immediate response of the supply by the producers. As a result, the government decided to run on the principle that businesses should be free to grow without government interference. Since the government did not mediate, that meant that businesses were free to consolidate and set their own prices and basically run a monopoly. Antitrust laws were rarely enforced, and as a result, mass consumption, production, and giant corporations dominated the 1920’s. The cost of the government to hop on the bandwagon of the automobile was to the tune of over $75 million. This money would be spent over five years and would go to building rural post roads. However, with the passing of the Highway Act of 1921, Congress spent as much money for a single year’s construction as it had for all of the preceding five years. This means that the extra money that they could have spent elsewhere went to the construction and rebuilding of roads. According to the third principle of economics, “Incentives matter”. The incentives of the automobile almost seemed endless because of the predicted possibilities. The construction boom of the 1920’s was credited to the automobile because it gave people the ability to travel from longer distances. Since people were able to travel longer distances, this also gave the incentive for the boom of suburban living. The suburban lifestyle gave people the notion of a great place to raise a family instead of the hustle and bustle of the city where there was more likely to be crime and questionable activity. The automobile also gave the incentive for people to build establishments such as restaurants and gas stations in parts of the country that people would have never thought to build. However, since highways were being heavily funded, people had incentive to build since more people would be passing by. The “buy more, pay later” system gave people more incentive to buy more products because less money was needed to get what they desired. Since demanded was higher, this gave producers more incentive to make more products and as a result the economy boomed. Then, because the economy seemed to be doing so well, this gave incentive for the government to have less interference in business affairs. The incentives of the prohibition movement was that if alcohol consumption were to be eliminated, then worker production would increase and the economy would run more efficiently. However, what was later realized was that instead crime was stimulated and bootlegging became a major industry. Due to this increased crime rate, in 1933 the government had an incentive to get rid of the prohibition amendment to the Constitution by ratifying the Twenty‐First Amendment. According to the fourth principle of economics, “Institutions matter and influence choices”. When it came to the prohibition of alcohol the government was the driving institution that made sure that the law was enforced. Even though a majority of the middle class supported the movement in the beginning, the threat of legal action if you consumed or sold alcohol gave the prohibition movement it’s backing force. Whenever there is a consequence to an action people will think twice before they do something. Since the government took more of a laissez‐faire approach to government in the 1920’s, this gave a large incentive for businesses to run the way they wanted without the government taking action on them. Since the government was not regulating large business this gave them incentive to form trade associations and set prices. These actions would have been deemed illegal earlier in the century and would have been put to a halt due to antitrust laws, but since presidents Harding and Coolidge made a point to let the economy be free, nothing was done to stop big businesses. The government had a huge influence on the boom of the automobile industry due to the amount of funding they put into building new roads. The automobile enlarged the demands on government for paved roads, as automobile clubs and farmers pressed for assistance to get out of the mud. Also, the $75 million that went towards building new roads and highways encouraged the construction of establishments that would have never been built if not for the influence of the government’s money. According to the fifth principle of economics, “Understanding based on knowledge and evidence imparts values to opinions”. People knew that because of automobiles, this influenced the average person to travel more. And when people want to travel and go on vacation, they generally want to go to somewhere warm. These basic facts and knowledge encouraged what is known as the Florida Land Boom. People knew that other people would be encouraged to go to Florida, so as a result they invested in putting establishments such as motels, restaurants, and tourist shops. With the “buy now, pay later system”, producers knew that there would be an increased demand for products because now there would be less money required in order to buy goods. As a result, producers realized they needed to produce more products in order to get more of a profit. This need for more production encouraged the use of mass production and the technological advancements made towards durable consumer goods. When it came to the prohibition movement, it was assumed that once people knew that drinking and selling alcohol would come with legal action, people would not take part in it. However, instead the trafficking of alcohol became a major industry and people began to see the consumption of alcohol as a forbidden luxury. This encouraged people to continue to drink and sell alcohol even though it was illegal. And since it was becoming more evident that the prohibition of alcohol was encouraging crime, people began to have different opinions about the “Nobel Experiment”. Today the automobile continues to influence us in basically the same way that it did over 80 years ago because besides an airplane, an automobile is the prime mode of transportation from getting place to place. Recently, Montana became the last state to enforce speed limits on roads. The government gives more money to states that reinforce speed limits because they believe that speed limits save lives and reduce the amount of accidents on the road. Also the recent bailouts of GM/Ford have made the news because of the billions of dollars that were allocated towards keeping this conglomerate in business. If a small barbershop in Tallahassee were bailed out, this would not make news because it would affect very few people. However, since GM/Ford employs so many people and sells so many cars, this affects the lives of many people. The consumer credit system definitely still applies today and not just for good such as refrigerators and radios but also houses and car payments. If it weren’t for consumer credit then many people would not be able to afford to buy a car for their family. The option to be able to make a down payment on a car and pay the rest in installments enables families to not only buy one, but multiple cars for their needs. Also in nice parts of Jacksonville, I know that house prices can run in the $300,000 range. This amount of money is not available to most people on demand, so the ability to make a down payment and pay the rest in installments is a great option for the average person. Lastly the “Nobel Experiment” has taught us today that even though prohibiting alcohol may sound like a good idea on paper, it creates unintended consequences such as an increase in crime that trumps the good it does for society. Also the concept behind the prohibition of alcohol has the same premise as today’s prohibition of marijuana. People believe that due to the overpopulating of people in jail and the swamping of court cases due to something as miniscule as smoking weed, we should follow the path of alcohol and make marijuana legal. This hasn’t been enacted yet, but I have a feeling that history will repeat itself but with marijuana instead of alcohol.