Turning the American citizen into "The Consumer"

RECOMMENDED READING

Gatsby, jazz, the Lost Generation, flappers, Art Deco, Babe Ruth, Buster Keaton, Charles Lindbergh, the Charleston. The “Roaring Twenties” surely ranks high on many Americans’ “what time period would you travel back to?” list. It’s a decade we remember as a cultural golden age, and for good reason. America for the first time projected a mass popular culture out into the wider world, thanks to its newfound identity as a nation of middle-class consumers: consumers of GM cars and movie tickets, radios and baseball cards. Thanks to the decade’s ad men and financiers and would-be radicals, and to intentional neglect by laissez-faire political leaders, this new model of American life eclipsed the traditional one; no longer republican citizens or free laborers or yeoman farmers who could fashion their community through productive work and engagement in politics, middle-class Americans would now perpetually fashion themselves through engagement with the market. Decisions about the direction of economic change or the nature of the political community no longer belonged to them. A hundred years later, still a nation of consumers, we look back on that culture fondly and forget what was lost. The price Americans paid for their new freedom as consumers was their political and economic agency.

Beneath the vibrant consumer culture we associate with the 1920s was seismic economic change. One particularly noticeable aspect of this change was the explosion of advertising, which promised greater happiness and power—therapeutic release from the psychic burdens of daily life and tighter control over one’s health and appearance—through purchasing. New mass media made radio ads and the nationwide mailing of catalogs a regular part of life.

The price Americans paid for their new freedom as consumers was their political and economic agency.

But a more important feature of the economic revolution of the ’20s was a sudden, massive increase in the amount of loose cash flying around for people to use on consumer products, an increase that wasn’t coming from wage growth (more on that later). It came from the opening of a new frontier of credit, stocks, and speculation, which would make up for the closure of the old frontier, the West, where value could only come from land and labor. Puff pieces in mass-market magazines touted the investors and business leaders of this new age as natural successors of the pioneers, promising that, for those with an eye for opportunity and a willingness to gamble, it was now as possible to strike it rich in the big cities of the East as it had been in the empty expanses of the West. If mass culture and mass media became part of every American’s life in the 1920s, so too did financialization.

It started with the repeal or reform of usury laws across the United States. Historian Lendol Calder relates how, in the 1910s, Progressive activists spurred the emergence of the personal finance industry. Noticing that industrial workers would often go to illegal loan sharks and pawnbrokers to supplement low wages, reformers set up “remedial loan” shops as a palliative and “philanthropic” alternative (instead of, say, calling for higher wages). Along with this innovation came a political campaign to overturn usury laws, which were making it difficult for these new remedial loan shops to operate. This “legalize but regulate” tactic failed to end loansharking, but it succeeded in making usurious lending more acceptable to bourgeois America. Proponents of the industry assuaged the uneasy middle-class conscience, arguing that locking oneself into long-term payment plans encouraged hard work and personal discipline. Loan sharks now had a path to legitimization, and many rebranded as “personal finance” enterprises managed by experts. All of a sudden, middle-class America had a socially acceptable path to easy credit.

Banks embraced the easy-money ethos as well. Earlier generations of bankers were content to sit back and let the occasional loan application come to them. “To most bankers before the 1920s, the notion of banks actively selling credit would have sounded strange,” writes economist Tobias Rötheli. “New ways of doing business arrived with the introduction of the instruments of marketing … innovated in the marketing of consumer goods.” Banks started hiring experts in consumer psychology and adopting marketing tactics, as if they were Ford selling Model Ts. Following the Progressives’ craze for “scientific management” and applied social science, major U.S. banks also adopted standardized formulae for evaluating creditworthiness.

The math said where the money was, and the math gave power to make decisions about where it should go. Bankers had the math; clients and regulators did not.

Based almost exclusively on comparing debt-to-asset ratios, these turned out not to be very good at differentiating levels of risky borrowers, a problem banks would not notice until it was too late. But they served an ideological purpose. Flattening client portfolios into a few numbers for comparison, a bank could ignore certain complexities of an individual client’s life and livelihood. The math said where the money was, and the math gave power to make decisions about where it should go. Bankers had the math; clients and regulators did not. Concerns about the disempowerment that comes with debt could be dismissed as naĂŻve Victorian moralizing, made obsolete by the latest innovations in social science. Armed with their formulae, banks aggressively advertised their loan products to consumers of credit, certain of safe returns.

And even though there was no more land in the West for homesteads, there was a new site of the American Dream: Wall Street. On this new frontier, you didn’t have to work on what you owned, you just had to own it (or buy or sell at the right time). Now the market would provide what, for a century, the hard toil of westward expansion had: access to property and thereby upward mobility. Stock trading had been something of a niche activity in America for the several decades since its first appearance. But now middle-class people were buying stocks, often with borrowed money. Fewer than one million Americans owned corporate shares in 1910. By the early 1930s more than 10 million did. And companies increasingly relied on selling stock to raise funds; the number of industrial stocks on the New York Stock Exchange doubled from 1915 to 1920 and doubled again from 1920 to 1930. The number of stocks on the Chicago stock exchange also doubled from 1915 to 1920, and then did it again between 1920 and 1925. 

Sellers of consumer goods encouraged middle-class borrowing with credit innovations of their own. The 1920s was the era of the installment plan. First utilized in the 19th century for expensive, technologically complex labor-saving devices (like Singer sewing machines and McCormick reapers), “buy now, pay later” plans became the norm for more and more consumer products. Companies offered them for furniture and clothes and other common items, and, like personal loans, installment buying attained middle-class acceptability by the 1920s.

The lesson was clear: consumption was just as good as production; production is what we businesses do, while consumption is what you do. Going into debt is just as appropriate for one as for the other.

It took some convincing, of course. During the years 1926 and 1927, business organizations launched a significant PR campaign to recast “consumptive credit” (which connoted not just waste and extravagance, but sickness) as “consumers’ credit.” The message is captured by one 1928 ad from the Julian Goldman department store: “A factory or a fur coat (both of them may be bought on credit) … What is the difference in these transactions? Nothing—except size!” The lesson was clear: consumption was just as good as production; production is what we businesses do, while consumption is what you do. Going into debt is just as appropriate for one as for the other.

The average American—branded, for the first time, as “The Consumer”—was now confronted with easy money from lots of institutions, some new and some old. State-of-the-art personal finance companies and old neighborhood banks, the newly developed stock market and the long-trusted retailer all offered new ways to purchase, even without substantial wages or savings. Middle-class buying and borrowing habits changed drastically. American households’ consumer debt more than doubled over the course of the decade, both in raw numbers and as a percentage of household income. It went from $3.3 billion in 1920 to $7.6 billion in 1929, and, after hovering between 4–6% in the first two decades of the 20th century, it jumped to 10% in the third. After declining from 1900 to 1916, real debt per household nearly doubled in the 1920s. Urban mortgage loans to homeowners and businesses also doubled over the course of the decade.

In 1930, Harvard economist Franklin W. Ryan declared that “the American family’s plunge into debt for commodities during the last few years constitutes one of the most remarkable phenomena in modern history.” It was as if every financial institution and consumer goods retailer were just printing money out of nothing. The rapid increase in liquid cash boosted the economic metrics, ensuring boom times for as long as the credit and consumption and investing habits persisted. And yet, while these economic changes were transforming life for the average American, economic issues were being taken off the ballot.

*  *  *

For the entirety of American history up to that point, economic questions were highly contested in the public square. Issues we might today consider too technical for the average voter often decided presidential elections. Should there be a national bank? Should the federal government spend money on “internal improvements” (that is, infrastructure)? What should be the going rate for sales of federal land? Should the dollar be backed by gold or silver or both—that is, should the U.S. pursue an inflationary or deflationary monetary policy? From the earliest days of the republic to the eve of the 20th century, popular movements rose and fell on questions like these.

Decisions about economic policy were no longer up for democratic political debate; they now belonged to a specific set of people and institutions.

The 1920s marked a turning point. Redefining the middle-class American as a consumer meant certain questions weren’t addressed to him anymore. Decisions about economic policy were no longer up for democratic political debate; they now belonged to a specific set of people and institutions. Any intervention by elected officials was reframed as a threat to the whole system.

Crucial to the depoliticization of economic questions was the identification of a new and very narrow set of protagonists in the story of the American economy. In his study of the rhetoric of “free enterprise,” historian Lawrence Glickman identifies the 1920s as the moment when “free enterprise” stopped referring to a spirit shared by Americans as a people and began to be identified with the business community in particular. “In the 1920s,” Glickman writes, “advocates began to describe free enterprise as a system of business autonomy that worked automatically and efficiently, but only if the government played a limited role in aiding … the firm.” The drive to create, to develop, to strive was no longer understood as a common trait of American citizens. It now belonged to businesses and their leaders. It was they—and the efficiency experts who floated between posts in business and government—who were fit to make decisions about national banks, monetary policy, taxation, and spending. And those happy few still allowed a say on economic policies all agreed on what those policies should be: cut taxes, cut spending, and deregulate.

Both major political parties took the unpopularity of the Woodrow Wilson administration as an opportunity to elevate business-friendly candidates for office. The presidential nominees for both parties in 1920—and again in 1924—campaigned on tax and spending cuts, and didn’t touch the growing debt, speculation, and consumption that increasingly defined middle-class American life. The GOP in particular proved a willing vehicle for the depoliticization of economic policy. Its nomination in 1920 of an empty suit named Warren G. Harding signaled a clean break from the Teddy Roosevelt era, and Harding passed off policy decisions to cabinet members like banker-turned-Treasury Secretary Andrew Mellon. Mellon and Vice President Calvin Coolidge (who rose to the presidency when Harding died suddenly in August 1923) successfully lobbied to cut the top marginal tax rate from 73% all the way down to 44%. During Mellon’s tenure as Treasury Secretary, the federal budget was cut by more than half, from $6.4 billion to $2.9 billion.

Coolidge, best known for his maxim “the chief business of the American people is business,” has become the subject of considerable conservative nostalgia. Some speak of him as a prophet of later generations’ supply-side thinking and even attribute the prosperity of the 1920s entirely to his tax policies, which lowered the top tax rate all the way to 25%. But this is simplistic and misleading. The Coolidge economy was artificially propped up by the enduring effects of wartime production, the plethora of new financial instruments, and now-obvious credit bubbles.

In any case, Coolidge didn’t cut taxes and spending to unleash economic growth or advance the common good. Rather, he understood these cuts as a matter of public servants’ personal character.

In any case, Coolidge didn’t cut taxes and spending to unleash economic growth or advance the common good. Rather, he understood these cuts as a matter of public servants’ personal character. â€śI regard a good budget as among the noblest monuments of virtue,” he declared in one 1924 speech. Sticking to his administration’s proposed budget, he said in another, “requires us to demonstrate whether we are weaklings, or whether we have strength of character.” In accepting his proposed budget cuts, government employees (saying nothing of the lay beneficiaries of government spending) showed they were willing to make “sacrifices,” while resisting them was a sign of “extravagance and inefficiency in the public service.”

This rhetoric reduced tax and spending issues to a question of good governance, and to the personal thriftiness and virtue of public servants as individuals. The Progressives had moralized against monopolies and tried to wrest policy from contentious elections and place it in the hands of virtuous experts. Coolidge’s Republicans, in their moral crusade against government “extravagance,” did something analogous. Both movements encouraged an inward turn by American political elites. What drove political contention over economic questions, for them, was not concern for the common good or the pursuit of social goals, but some personal attribute of public officials—their level of expertise or their moral character. The only economic interests up for discussion were those of the businessmen and bankers who could make friends in Washington—men like Mellon. There was no place in the picture for middle- or working-class Americans to have interests of their own that business leaders and their collaborators in government were obliged to recognize, much less balance against their interests.

*  *  *

The 1920s GOP could equate the interests of big business with the economy as a whole thanks to vigorous and violent suppression of working-class dissent. The year 1919 was a disaster for organized labor. A series of highly publicized strikes, from Seattle to Boston, drew suspicion from the middle class and violent crackdown from authorities. With the Russian Civil War raging, it was all too easy for bosses and clout-seeking politicians to paint the strikers as Bolsheviks who needed to be put down for the good of democracy.

In 1919, fighting the unions made one an instant political darling. Then-Massachusetts Governor Calvin Coolidge put his name on the political map by sending in a militia to break up the Boston police strike. On the other side of the aisle, Attorney General A. Mitchell Palmer launched raids on suspected Communists, arresting thousands of people with left-wing sympathies (including labor leaders), in hopes of riding the wave of panic to the Democratic nomination for president the following year.

Wage growth lagged far behind industrial productivity, and non-union wages actually fell from 1920 to 1926. But that wasn’t really seen as a problem, so long as the simultaneous expansion of consumer credit meant people could still buy stuff.

Palmer’s Red Scare blew over quickly, but it left lasting damage. Labor was now thoroughly alienated from both political parties and held suspect by the middle class. Union membership fell from five million to three million over the 1920s. Business leaders in rail, steel, and other industries felt empowered to refuse union recognition and fire anyone who threatened strikes. Companies enjoyed greater bargaining power as widespread adoption of mass-production techniques and elevation of a new managerial class trained in “scientific management” devalued blue-collar work. Wage growth lagged far behind industrial productivity, and non-union wages actually fell from 1920 to 1926. But that wasn’t really seen as a problem, so long as the simultaneous expansion of consumer credit meant people could still buy stuff.

Without labor as a live political force, and with anything to the left of Warren Harding viewed as traitorous, the version of the American left that emerged in the 1920s was just another expression of the decadent culture of debt and consumption. The failures of Wilson’s foreign policy led the prior decade’s leading Progressive intellectuals (such as Walter Lipmann, John Dewey, Herbert Croly) to give up on their cherished project of using science to improve society and optimize politics. The rising generation of radicals aimed instead for personal renewal, challenging gender norms, and enshrining self-expression. 

“All the stories that came into my head had a touch of disaster in them,” F. Scott Fitzgerald later wrote of his work in the ’20s. And it wasn’t just him. The defining trait of writers, artists, and intellectuals of this time was pessimism. The world war and the ensuing economic boom alike proved that progress was a lie, and that America was too obsessed with materialism and utility and machinery to be hospitable for art. Many famously expressed their rebellion against the “business civilization” of the United States by emigrating to France. Others tried to build a community of artists in Greenwich Village. Literary critic Malcolm Cowley, in his 1934 memoir Exile’s Return, outlined their governing values: “self-expression,” “paganism,” “living for the moment,” “female equality,” and “changing place.” But, Cowley pointed out, wherever they went, the Lost Generation’s rebellion against materialism and business only fed the emerging “consumption ethic.”

“It happened that many of the Greenwich Village ideas proved useful” in the establishment of a new consumer ethos by business and advertising, Cowley recalled. His discussion of the convergence between the values of radical self-expression and those of consumerism is worth quoting at length:

Self-expression and paganism encouraged a demand for all sorts of products—modern furniture, beach pajamas, cosmetics, colored bathrooms with toilet paper to match. Living for the moment meant buying an automobile, radio or house, using it now and paying for it tomorrow. Female equality was capable of doubling the consumption of products—cigarettes, for example—that had formerly been used by men alone. Even changing place would help to stimulate business in the country from which the artist was being expatriated. The exiles of art were also trade missionaries: involuntarily they increased the foreign demand for fountain pens, silk stockings, grapefruit and portable typewriters. They drew after them an invading army of tourists, thus swelling the profits of steamship lines and travel agencies. Everything fitted into the business picture.

Everywhere around him, Cowley saw people striving to remake themselves through consumption. Everyone could shed Jimmy Gatz and become Jay Gatsby.

*  *  *

With old Progressives and young radicals alike uninterested in politics, and with the economic interests of the middle and working classes removed from discussion, there was only one thing left for Republicans and Democrats to fight over: identity.

With old Progressives and young radicals alike uninterested in politics, and with the economic interests of the middle and working classes removed from discussion, there was only one thing left for Republicans and Democrats to fight over: identity.

Mind you, it was not much of a fight. The Democrats sustained the largest presidential election losses in American history in 1920 and 1924, winning only 34% and 29% of the popular vote, respectively. Republicans also gained a congressional supermajority in 1920. Since their candidates shared the Republicans’ low-tax, small-government agenda, the Democrats were entirely defined, as a national party, by Woodrow Wilson’s unpopular administration.

Making things worse for the Democrats were intense internal divisions, resulting especially from the reemergence of the Ku Klux Klan—itself a creature, at least in part, of mass consumer culture. The KKK had been defunct for half a century, until everyone saw a movie about it. D.W. Griffith’s Birth of a Nation supplied a new look and new habits for white nationalists too young to realize that flaming crosses and white hoods were not markers of some noble heritage, but mere images from the silver screen. Despite its roots in marketing and movies, the new Klan was highly politically motivated, and it broadened the targets of its violence to include not only African Americans but immigrants, Catholics, and Jews. This was bad news for a political party built on a coalition of Southern whites and Northern industrial workers, large percentages of whom were Catholics and immigrants.

Religious identity supplied plenty of fodder for the culture wars of the 1920s. Prohibition became for many, including the KKK, a proxy for the divide between Catholic and Protestant, immigrant and native. Within the ranks of American Protestantism, conservative fundamentalists and liberal modernists took potshots at each other, in sermons and in the press, over evolution and Biblical literalism. The Scopes “monkey” trial made these issues a national flash point.

On the eve of the biggest economic event in American history, questions of economic policy were simply off the table for voter scrutiny. Identity was the only thing to vote on.

It all spilled over into the presidential election of 1928. After the embarrassing failures of pro-business candidates in the two prior elections, the Democrats nominated New York Governor Al Smith, a Catholic whose prior bids for the nomination had failed thanks largely to Southern opposition. Smith’s personal identity became the sole issue in the general election. Newspapers and pundits openly declared that to be Catholic was an automatic disqualifier for public office. Rumors claimed the Pope was orchestrating Smith’s campaign, and if elected, the Democrat would move the Vatican to Washington, D.C. The part-Italian, part-Irish Catholic New Yorker stood no chance against Herbert Hoover, a self-made Iowa boy from an old Quaker family. On the eve of the biggest economic event in American history, questions of economic policy were simply off the table for voter scrutiny. Identity was the only thing to vote on.

And yet, Smith outperformed the previous two Democratic nominees by a significant margin. By nominating him, the Democrats began to reach out again to voters they had neglected for a decade. Issues of class and economics did not come up explicitly, but it became clear that there was an untapped working-class constituency.

Everything fell apart in September 1929. Our collective cultural memory of the ’30s could not be more different from our picture of the “Roaring Twenties.” It turned out that the whole decade’s worth of culture and politics had been premised on an illusion—“endless” growth fueled by ballooning consumer debt and a self-obsessed political class. All of it had to change, and the Democrats were positioned to keep up with the times. The “New Deal” Franklin Roosevelt promised in his own campaign against Hoover was not so much a set of policy goals (those would be developed over the course of his presidency) as a promise to bring economic policy and a recognition of working- and middle-class interests back on to the ballot. The Republicans did not get the memo. Doubling down on the laissez-faire consensus of the Coolidge years, never admitting that that consensus had relied on conditions that no longer existed, they wallowed in political irrelevance for generations.

*  *  *

Cowley’s characterization of the 1920s as a shift in American culture from a “production ethic” to a “consumption ethic” following the First World War struck a chord decades after the publication of his memoir. It shaped how historians and social critics in the second half of the 20th century understood cultural change in their own time. Memory of the first consumer age became relevant again as a new cultural vibrancy driven by consumerism seemed to overtake politics and remove concrete economic questions of work and class from public discussion. Christopher Lasch, Daniel Bell, and others understood the ’60s and ’70s as an echo or continuation of the ’20s. 

That conversation is ongoing, almost a century after Cowley started it. Amid the COVID-19 pandemic, internet memes foretold a new “Roaring Twenties” emerging out of the biggest pandemic since the 1918 flu. And indeed, even if the GDP doesn’t surge as dramatically as it did in the mid- to late-1920s, today’s ever-deepening financialization, wage stagnation, culture wars over identity issues, and the spreading rule of technocrats and “experts” should look familiar. Without a political expression of working-class interests, and with no one looking beyond the ephemera of consumer self-expression to the care of the common good, the future wellbeing of families and communities is in doubt. If the 1920s tell us anything, it’s that allowing political leaders and economic institutions to treat us as mere consumers, rather than as workers and citizens, is unlikely to end well.

Philip Jeffery
Philip Jeffery is deputy opinion editor of Newsweek.
@philipljeffery
Recommended Reading
The Persistent Thief With Oren Cass

American Compass executive director Oren Cass joins Consumers’ Research to discuss how underestimating inflation is depriving consumers of the American Dream.

Rebuilding American Capitalism Provides the Agenda for Conservative Economics

The policy handbook synthesizes three years of work at American Compass

Announcing the Common Good Economics Grant Program

The Common Good Economics grant program will support projects rethinking the role that economic policy can play in advancing the common good.