The other great engine of change that made the twentieth-century American economy so different from that of the nineteenth was electricity. Electricity began being scientifically investigated in the eighteenth century and had its first major practical application in the telegraph, which started to spread in the 184Os. Edison’s electric light, far superior in both illumination and safety to gaslight, spurred the demand for electricity, which quickly spread to the major cities. But it would be the middle of the twentieth century before the New Deal’s Rural Electrification Administration made it available nearly everywhere. The astonishing increase in our electricity consumption in the past hundred years is, in very important ways, a measure of the American economy over that time. In 1902 the country produced 6.0 million kilowatt hours of electricity. By 1929, 116.7 million; in 1970, 1.4 billion; and in 1997 we produced 3.1 billion kWh.
Because steam engines have to be large to be efficient, and electric motors can be made in nearly any size required, the latter began to replace the former in factories in the 189Os, markedly increasing productivity and thus lowering manufacturing costs. Small electric motors also made possible the powered household appliances—vacuum cleaners, refrigerators, washing machines—that became widely available in the 1920s and greatly contributed to that decade’s boom. Those appliances also replaced domestic servants, who were becoming harder and harder to find, especially after immigration was sharply curtailed in 1921. In 1900 domestic service was the single largest nonagricultural job category in the United States; by 1950 the housemaid was (proportionately) nearlv extinct.
Advertising—using newspapers, magazines, billboards, and, more than ever, the new medium of radio, which exploded in popularity in the 1920s—became an important force in the American economy. New advertising techniques created demand for newer and better products, driving the economy forward. Credit, once limited to the wealthy, became more widely available as banks and, increasingly, manufacturing companies financed such major purchases as cars and household appliances.
This surging prosperity was, of course, reflected on Wall Street. There had been a short depression as the economy adjusted to peace after World War I, but by 1922 it was over, and Wall Street and the national economy began to soar. The gross national product, $59.4 billion in 1921, rose 47 percent, to $87.2 billion, by 1929. Per capita income rose by more than a third, and federal taxes were sharply reduced.
Stocks rose along with the gross national product. General Motors, which had dipped as low as 14 in the Depression of 1920-21, hit 210 by 1926. The Dow Jones Industrial Average, which had been at 75.2 in the beginning of 1921, would reach 381.17 in 1929. The number of shares listed on the New York Stock Exchange tripled between 1924 and 1929, and loans made by brokerage firms to finance stock purchases nearly quadrupled.
But while the cities grew increasingly prosperous, the rural areas of the country, largely unnoticed by the big-city media, were sliding into economic trouble. The seller’s market in agricultural products brought about by World War I dried up with the armistice, and exports returned to more normal levels. Still, American agricultural production continued to climb. One major reason for this was the spread of the tractor, which not only made farmers much more productive but freed up land once used to grow feed for draft animals. In 1900 a third of the country’s cropland had been used for fodder. As the horses and mules disappeared, this land was increasingly used to grow human foodstuffs, and farm prices began a relentless decline.
This hurt the rural banks. In 1921 the United States was home to an astounding total of 29,788 banks, the vast majority of them small, one-branch affairs in country towns. State laws often made it impossible for banks to combine into larger, more financially stable institutions, so they were tied to local business and agricultural loans. As farm prices dropped, farmers defaulted on their obligations. At the same time, the automobile made it increasingly possible for people to shop—and bank—beyond the nearest village. Small-town banks, losing their local deposit monopolies on one side of the ledger and their loan business on the other, began to go under. These failures averaged 550 a year in the 1920s. That trickle would soon become a flood.