Why did consumption increase in the 1920s?

Economic theory tells us that consumption is based on supply and demand.  An increase in consumption can be caused by an increase in supply, an increase in demand, or some combination of the two.  In the 1920s in America, both supply and demand rose, causing consumption to rise dramatically.  Let us look at two ways in which increased demand caused this increase and one way in which the increase was caused by increased supply.

One of the things that determine demand is the amount of money that people have.  It stands to reason that people who have more money will buy more things.  During the 1920s, the economy boomed.  More people had jobs, making more money than ever before.  This meant that Americans had more money to spend and demand increased.

A second thing that determines demand is consumer tastes.  People want many things that they do not really need.  For example, we really do not need to have enough clothes to wear a different outfit every day for two weeks in a row, but we typically do have that many clothes.  This is partly because our tastes tell us that we should vary our wardrobe.  We do not really need makeup or jewelry, but our tastes tell us that we should have them.  During the 1920s, advertising became much more prevalent and more effective.  Before this time, advertising was more matter-of-fact, telling people what goods were available for what prices.  In the 1920s, companies started to advertise in ways that were meant to make people really want their products.  Advertising convinced people that they needed things that they had gotten along without before.  This caused an increase in demand as people wanted to use their new wealth to buy things that advertising convinced them they needed.

People also buy more things when prices drop.  One major reason why prices drop is because producers get better at making their goods.  When a producer gets better at making goods, they can make more goods using a given amount of inputs.  This reduces the price of the goods.  In the 1920s, companies innovated.  This allowed them to make goods more efficiently.  For example, Henry Ford figured out how to use assembly line practices to make cars more quickly.  This caused the price of cars to drop and allowed many more people to buy them.  This happened to many other goods.  As prices dropped, people were willing and able to buy more goods.  This, too, helped increase consumption.

Thus, we can say that consumption increased in the 1920s because people had more money, because advertising convinced them that they wanted more things, and because improved production techniques reduced the prices of consumer goods.