In 1919, the percentage shares of total income received by the top 1 percent and the top 5% stood, respectively, at 12.2 percent and 24.3 percent; in 1923 the shares had risen to 13.1 percent and 27.1 percent and by 1929 to 18.9 and 33.5 percent. According to the Brookings Institution, in 1929 “0.1 percent of the families at the top received practically as much as 42 percent of families at the bottom of the scale.”
By 1929, 71 percent of American families earned incomes of under $2,500 a year, the level that the Bureau of Labor Statistics considered minimal to maintain an adequate standard of living for a family of four. 60 percent earned less than $2,000.00 per year, the amount determined by the Bureau of Labor Statistics “sufficient to supply only basic necessities.” 50 percent had less than $1700.00 and more than 20 percent had less than $1,000.00.
During the steep recession in the first years of the decade unemployment (among non-farm workers) hit 19.5 percent in 1921 and 11.4 percent in 1922. In 1924 it rose from 4.1 to 8.3 percent, fell to 2.9 percent in 1926 and was back up to 6.9 percent in 1928. 1922-1926 was the period of fastest growth in production and profits before over-investment and under-consumption slowed the rate of GDP and sales growth. Yet two of those boom years saw unemployment comparable to or exceeding 2015’s official unemployment figures.
Real poverty can be disguised, and the principal means of obscuring material insecurity when there has appeared to exist a middle class has been the extension of credit to vast numbers of working households. During both the 1920s and the Golden Age households accumulated mounting debt in order to achieve the “middle class standard of living.” Workers’ wages needed a substantial supplement of financial speed to goose the buying power required for middle class pleasures. The Twenties were the first instance of what was to become an abiding feature of American capitalism, the need for large scale credit financing to sustain levels of consumption required to stave off macroeconomic retardation and persistent economic insecurity. The Hoover Commission Report, a massive study of the economy of the 1920s conducted by a large team of the country’s most prominent economists, reported that:
“The most spectacular and the most novel development in the field of credit was the growth after 1920 of a variety of forms of consumers’ borrowing… the amount of such credit was tremendously expanded, both absolutely and relatively, during the past decade.”
The proportion of total retail sales financed by credit increased from 10 percent in 1910 to 15 percent in 1927 to 50 percent in 1929. Over 85 percent of furniture, 80 percent of washing machines and 75 percent of phonographs and radios -indeed most new consumer items- were purchased on time. A prime reason GM pulled ahead of Ford in car sales was that it enabled credit purchases through the General Motors Acceptance Corporation (GMAC). Credit was even used to buy clothes. Young single working women often went into debt to keep up with the latest styles. By 1929 sales on installment approached $7 billion. Many more people bought these goods than would have had they had to save the total price in cash before making the purchases. Credit pervaded the household economy and disguised low wages, as it would again in the postwar period.
In Middletown, the landmark study of the industrial town Muncie, Indiana, in the years 1924-1925, Robert and Helen Lynd note the pervasiveness of credit in the everyday lives of working people there:
“Today Middletown lives by a credit economy that is available in some form to nearly every family in the community. The rise and spread of the dollar-down-and-not-so-much-per plan extends credit for virtually everything – homes, $200 over-stuffed living-room suites, electric washing machines, automobiles, fur coats, diamond rings – to persons of whom frequently little is known as to their intention or ability to pay.”
Wages did not increase as rapidly as did debt growth. In fact, wages remained flat throughout the 1920s. So debt grew to the point at which it could not be paid. Borrowing and purchasing power then declined in 1926; under-consumption became conspicuous as excess inventories and capacity built up. Crisis ensued.
In 1946 the ratio of household debt to disposable income stood at about 24 percent. By 1950 it had risen to 38 percent, by 1955 to 53 percent, by 1960 to 62 percent, and by 1965 to 72 percent. The ratio fluctuated from 1966 to 1978, but the stagnation of real wages which began in 1973 pressured households further to increase their debt burden in order to maintain existing living standards, pushing the ratio of debt to disposable income to 77 percent by 1979. And keep in mind that accumulating debt was necessary not merely to purchase more toys, but to meet rising housing, health care, education and child care costs. With prohibitive health care costs the leading cause of personal bankruptcy, debt was necessary for all but the wealthy to stay out of poverty.
By the mid-1980s, with ‘neo-liberalism’ in full swing and wages stagnating, the ratio began a steady ascent, from 80 percent in 1985 to 88 percent in 1990 to 95 percent in 1995 to over 100 percent in 2000 to 138 percent in 2007. As debt rose relative to workers’ income, households’ margin of security against insolvency began to erode. The ratio of personal saving to disposable income under neoliberalism began a steady decline, falling from 11 percent in 1983 to 2.3 percent in 1999. The debt bubble that became unmistakable in the 1990s was to be far greater than the bubble of the 1920s; the financial system by now was capable of far more fraud and treachery than was possible in the 1920s, thanks largely to deregulation and derivatives.
The majority of Americans were poor. Working Americans were poor. America was a poor country. In neither period was hard work and the corresponding wage sufficient to avert relative poverty. In the absence of organized resistance, the current age of rising inequality, low wages, high un- and underemployment and increasing economic precariousness will persist indefinitely.