We begin the survey of the 1920s with an examination of the overall production in the economy, GNP, the most comprehensive measure of aggregate economic activity.Real GNP growth during the 1920s was relatively rapid, 4.2 percent a year from 1920 to 1929 according to the most widely used estimates.The interwar period in the United States, and in the rest of the world, is a most interesting era.
The flexibility of car access changed this and the growth of suburbs began to accelerate.
The demands of trucks and cars led to a rapid growth in the construction of all-weather surfaced roads to facilitate their movement.
The Federal Reserve System first tested its powers and the United States moved to a dominant position in international trade and global business.
These things make the 1920s a period of considerable importance independent of what happened in the 1930s.
After that consumer prices were relatively constant and actually fell slightly from 1926 to 1927 and from 1927 to 1928. As European production began to recover after the war prices began to fall.
Though the prices of agricultural products fell from 1919 to 1920, the depression brought on dramatic declines in the prices of raw agricultural produce as well as many other inputs that firms employ.Though the Model T’s market share was declining after 1924, in 1926 Ford’s Model T still made up nearly 40 percent of all the new cars produced and sold in the United States.The Great Depression began in the summer of 1929, possibly as early as June.Price changes during the 1920s are shown in Figure 2.The Consumer Price Index, CPI, is a better measure of changes in the prices of commodities and services that a typical consumer would purchase, while the Wholesale Price Index, WPI, is a better measure in the changes in the cost of inputs for businesses.Romer’s recent work (1988) suggests that prices changed much more easily in that depression reducing the drop in production and employment.Wholesale prices in the rest of the 1920s were relatively stable though they were more likely to fall than to rise.Economic Growth in the 1920s Despite the 1920-1921 depression and the minor interruptions in 19, the American economy exhibited impressive economic growth during the 1920s.Though some commentators in later years thought that the existence of some slow growing or declining sectors in the twenties suggested weaknesses that might have helped bring on the Great Depression, few now argue this.Recreational activities such as traveling, going to movies, and professional sports became major businesses.The period saw major innovations in business organization and manufacturing technology.