The Economy of the 1920

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The Economy of the 1920s

• The Business of America is Business
• - Calvin Coolidge, 1923

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1. After World War I

• Industries switched from making war goods to
  consumer goods
• Consumers were interested in buying luxury
  items
• Items considered not necessary but making
  life more comfortable
• Examples radios, cars, telephones, electric
  refrigerators
• Many of these items required credit in
  order to purchase

1926 Chrysler Tourer
1920s Candlestick Phone
Family listening to radio
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2. Post-war Economic Boom

• Average income increased after WWII more to
  spend
• More meant more people wanted luxury items
• Businesses made more used profit to expand
  their production and employment
• More employment more workers making
• More income more to spend more goods
  purchased
• (Formula) High Production High Spending a
  Growing Economy
• Rapidly growing economy Bull
  Market
• Falling economy Bear Market

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3. Buy Now Pay Later!!!

• Installment Buying pay for an item on a monthly
  fee
• Get product now, pay a small part of it each
  month until it is completely paid for
• Dont need the entire price upfront
• Allows more customers to buy more expensive items
• I.B. creates a demand for more products
• But also put people in debt (cars, houses, etc.)
• Still have to pay the entire price (plus
  interest) over time
• (This is how credit cards work can be very
  dangerous)
• If you stop making payments on the item, the bank
  or company can take it away (lose your car or
  house)

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4 .Get Rich Quick in the Stock Market

• People had long invested in the stock market
  (Philadelphia 1790)
• Stock a share of ownership in a companys
  profits
• When people buy stock businesses use that money
  to expand the company (hire more people, make
  more goods)
• As the business grows and sells more products
  the value of the stock can increase
• Can also increase if more people buy more stock
• People literally make money over night
• But only get the money once you sell the stock
• If the value of the stock goes down people lose
  
• The goal is to buy at a low price and sell at a
  high price

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5 . On-margin

• Businesses wanted to find a way to sell more
  stock in at a faster rate (raise more to
  expand)
• Stocks could be purchased on-margin
• On-margin buyer pays a small of total stock
  cost, loans the rest of the cost from the
  bank/stockbroker
• (Example) Buyer pays 10, loans 90
• Loan money borrowed that must be paid back
• On-margin allowed stock buyers to buy more shares
  with the same amount of
• Hold the stock until its value increases then
  sell
• Repay the loan (bank/stockbroker) keep whats
  left
• On-margin only works if value goes up
• Value falls lose money and still have to pay
  back the loan

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Presidents of the 1920s

• Mostly left the economy alone
• Laissez- Faire govt keeps hands off
• Warren G. Harding (1921-1923) Return to
  normalcy
• Calvin Coolidge (1923-1929) The business of
  America is business
• Herbert Hoover (1929-1933) The end of poverty

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6. Trouble on the Horizon

• For most people the economy was growing
  perfectly
• Bu all was not well the economy (2 reasons)
• Farm prices were falling (loans taken out during
  WWI)
• Farmers were not making as much money on their
  goods many went bankrupt
• Bankrupt lacking the money to run your business
• 2. Banks were loaning depositor's to stock
  buyers/brokers
• If the stock market were to fall
• People may not be able to repay their loans to
  the bank
• Banks would not have peoples money when they
  came to get it
• Millions of savings would be lost over night