| Following World War I, households devoted more of their spending and their disposable income to purchases of major durable goods--long-lived household assets with relatively high prices and, accordingly, relatively frequent credit-financed purchase. Automobiles, household appliances, and radios accounted for most of this increase. Furthermore, households were substituting these goods for conventional saving instruments in their assets portfolios. The twentieth century personal saving rate is relatively constant only when consumer durable goods are statistically treated as investment goods providing consumable services.;In an Appendix, I document my development of new estimates of annual expenditures, depreciation, and stock of durable goods. The estimates link directly to those published in U.S. Bureau of Economic Analysis, Fixed Reproducible Tangible Wealth, 1925-1982. Annual estimates of the following series are given by commodity group and for total consumer durable goods: current dollar expenditures, 1869-1982; constant (1972) dollar expenditures, 1869-1982; implicit price deflators (1972 base), 1869-1982; constant (1972) dollar depreciation, 1899-1982; and constant (1972) dollar net stock, 1899-1982.;I use a standard formulation of the gradual stock-adjustment model to estimate, by commodity group, household demand for major durable goods, 1900-1982. The determinants of aggregate desired stock are relative price, life-cycle income, and the household formation rate. I find that demand is not stable across World War I, but is stable between the interwar and post-World War II periods. The estimated short-run price and income elasticities are significantly greater in the 1920s than previously. Pointing to this structural change in demand, I conclude that a "Consumer Durables Revolution" did occur in the United States in the 1920s. I cite institutional changes that occurred in the consumer credit and advertising industries between 1900 and 1920 to explain this demand shift: the rise of modern advertising and the expansion of consumer credit bolstered demand and gave households the financial means with which to respond to short-run price and income changes. |
