The War of 1914-18 made a profound change in American economy. During the period from 1910 to 1914, American industry was not passing through any period of rapid expansion. In 1914 itself, business was definitely in a slump, with conservative circles applying to Woodrow Wilson’s “New Democracy” a few of the milder epithets that they later applied to Franklin Roosevelt’s New Deal. Even the young automobile business was, as we have just seen, expanding chiefly because of Ford’s expansion. The tempo of American industry seemed to be slowing down, just as the tempo of British industry had been slowing down since the closing years of Victoria’s reign.
The war, however, changed all that. It made big companies out of little companies and it made enormous companies out of big companies. In 1910, the net income of American corporations was $3,326,000,000. In 1914, it was $3,617,000,000, an increase of only about 9 per cent in four years. For the next three years, however, the movement was perpendicularly upward:
1914 – $3,617,000,000.
1915 – $5,184,000,000.
1916 – $8,765,000,000.
1917 – $10,730,000,000.
The net income of 251 large corporations, from being $415,000,000 in 1914, rose to $1,774,000,000 in 1917. The number of those who
were paying income taxes on incomes of more than $3,000 a year rose from 357,000 in 1914 to 993,000 in 1917. Even the 1929 net income of all corporations was about $1,500,000,000 less than the 1917 figure.
After this country entered the war, Federal price-control and war taxes took some of the edge off corporate profits. But the expansion of business activity was greatly accelerated by our participation in the war. The following table shows the dollar income of American corporations from 1916 through 1920:
1916 – $35,200,000,000.
1917 – $84,600,000,000.
1918 – $86,400,000,000.
1919 – $99,800,000,000.
1920 – $118,100,000,000.
Notice how much the income figures increased after the war was over. There was not a corresponding postwar increase in output; the larger dollar figures reflect chiefly a pronounced increase in prices. It was the runaway prices of 1919-20 that finally broke the back of the war boom. But in the meantime the amount of money in circulation had expanded to a previously unthought-of amount.
In 1916, the American corporations took in about $350 per capita that is, each inhabitant of the United States spent an average of $350 on the goods that corporations sold. In 1920, the corporate income was about $1,100 per capita that is, the “average” person was spending $1,100 on the things the corporations had for sale. The income of corporations had more than tripled in five years’ time.
Furthermore, the farmer and the workingman got a very considerable portion of the new wealth created by the war. The value of farm products went from $9,895,000,000 in 1914 to $22,480,000,000 in 1918. In the 1910 census, farm property was valued at $40,000,000,000; in the 1920 census, it was valued at $77,000,000,000. Thus during the war boom the value of the American farm virtually doubled. And some 6,250,000 American farm families went through by far the most prosperous period in the history of agriculture. Indeed, it was one of the very few periods during which the farmer had considerable cash money left after getting in his crops and paying out his expenses.
The income of the factory worker was also greatly multiplied. During the five years ending with 1914, the American manufacturing industry had shown little increase in either jobs or wages. In 1909, the American manufacturers employed 6,615,000 workers. They paid them a wage of $3,427,000,000. The average factory pay in 1909 was about $520 a year, or $10 a week.
In 1914, the American manufacturers employed 6,896,000 workers. There were only 103 jobs in 1914 for every 100 jobs in 1909. The 1914 pay roll was $4,067,000,000, which was about $600 per man per year, or an average wage of $12 a week. It was no wonder that Ford was the only auto-maker who was making big sales increases during these years.
But conditions in the postwar world were very different. In 1919, the American manufacturers employed 9,000,000 workers. This was an increase of more than 2,000,000 since 1914. There were 130 jobs in 1919 for every 100 jobs in 1914.
Furthermore, the 1919 pay roll was $10,461,000,000. This is the most significant figure of all. The 1919 manufacturing wages were two and one-half times the 1914 manufacturing wages. The increase from 1914 to 1919 was considerably greater than the 1914 total. The average wage was $1,160 a year, or almost $25 a week. True, $25 a week is far from a fortune but it was more than twice what the factory worker was averaging at the beginning of the war.
To be sure, income increases were not net increases, as prices were also going through a rapid advance. Persons living on fixed incomes were losers on the war boom. And toward the end of the period, real wages were not much greater than they had been at the beginning. Yet industry came out of the war boom in a greatly expanded condition, and the total buying power of the population was greatly and permanently increased.
As might have been expected, the auto manufacturer was a major beneficiary of the war boom. It took the automobile industry from 1900 to 1914 to reach an output of 500,000 cars a year. In 1915, it barely missed an output of 1,000,000 cars and in 1916 it left the 1,500,000-car mark considerably behind it. Thus nearly thirty years of progress, at the prewar rate, was compressed into two years’ time.
The output and wholesale value (that is, the manufacturer’s income) of the 1914-16 automobile was:
1914 – 569,000 Cars; Wholesale Value: $458,957,000.
1915 – 969,930 Cars; Wholesale Value: $701,778,000.
1916 – 1,617,000 Cars; Wholesale Value: $1,082,000,000.
Here the most significant figure is the $1,082,000,000 wholesale value of 1916. Measured by its income, the automobile industry had now become a $1,000,000,000-dollar business. But it had not been even a $500,000-business in 1914. The retail cost of the 1916 automobiles was in the neighborhood of $1,300,000,000. Whatever may have been the ratio between higher incomes and a higher cost of living, or to whatever extent the national standard of living may have increased, it is evident that the people had $1,300,000,000 to spend on automobiles in 1916, and that they had never possessed any such automobile spending money before. Or, to put the same proposition in different terms, the number of people who could afford to buy automobiles in 1916 was about 1,000,000 greater than the number who could afford to buy automobiles in 1914.
Nor was the 1914-16 expansion dominated by the Ford Motor Company. It is true that Ford did very well. In 1916, he sold 534,000 automobiles against 264,000 in 1914, two cars in 1916 to one in 1914. But the remainder of the industry more than tripled its sales, selling 1,083,000 cars in 1916 against 300,000 in 1914. Ford sold about two fifths of the 1914 cars, but only one-third of the 1916 cars.
Part of the prosperity of the 1914-16 period resulted from the fact that auto prices were going down while popular income was going up. Ford had continued to apply his more-volume, less-price formula, with the result that in 1916 he got the Model T down to the remarkably low figure of $360. (He also made $59,000,000 in 1916 against $30,000,000 in 1914.) But other manufacturers were also cutting their prices, partly because of their increased volume but more because of increased competition. Willys, who came closest to following Ford’s technique of progressive price reductions, brought the Willys-Overland from $950 in 1914 to $750 in 1916. He sold 140,000 Willys-Overlands in 1916 against 45,000 in 1914.
The Packard also furnished an example of meeting a rising market with a falling price. Even before 1914, Packard was making a $3,500 car, although the $5,000 models were still being produced. But sales had become almost stationary. In 1914, Packard sold only 4,415 cars, compared to 4,318 in 1910. The 1914 profit was a little over $1,000,000. Then Joy put through a series of radical price cuts which brought the price of the average Packard down to about $2,500. And in 1916 he sold 18,572 Packards and cleared $6,206,000 on the year. In 1916, Joy retired from active leadership of the company, with Alvin Macauley taking his place.
Although the industry was rapidly expanding its capacity, the production of automobiles could not keep up with the demand for them. In November, 1915, for example, Hugh Chalmers harangued a convention of six hundred Chalmers dealers so effectively that in forty minutes he took orders for his entire 1916 schedule of 13,000 cars, at a wholesale price of $22,000,000. That was, no doubt, salesmanship. But it was also war.
Chalmers was a typical wartime sensation, perhaps the more so because neither his car nor his reputation long survived the war boom. In 1907, at the age of twenty-eight, Chalmers was sales manager of the National Cash Register Company at a salary of $72,000 a year. This salary, a living wage at any period, was in the stupendous category for a twenty-eight-year-older in 1907. Chalmers was persuaded to lend his selling talent to the auto industry, and was soon at the head of a company bearing his name. But he was better at selling cars than at making them. After the war, he over expanded his business and underpowered his car. The Chalmers was merged with the Maxwell, another postwar cripple, and both finally disappeared into the Chrysler Corporation in 1924.
Financial figures for the industry during this period are incomplete, as many companies were still privately owned and did not release income or profit figures. Most of the larger companies, however, reported their earnings, especially in periods when the earnings were good. In 1916, Ford, with his $59,000,000 profit, was by a wide margin the profit leader. General Motors, which made $28,812,000, was firmly in second place. Seven major “independents” (a totally meaningless but nevertheless convenient term for automobile companies other than General Motors and Ford) cleared about $40,000,000, including $6,200,000 for Packard, $6,744,000 for Dodge (The Dodge figure is the surplus increase for the year; during the lifetime of the Dodge brothers the company did not report an income statement.), and $8,611,000 for Studebaker. The nine major companies made $127,000,000. They also produced more than 1,000,000 of the 1,600,000 cars turned out during the year. It is impossible to say what the ninety-odd other manufacturers made on their 600,000 automobiles. But it is conservative to estimate the industry’s profit at $150,000,000 for the year.
