The Economy of the 1920s – Prosperity to PovertyGuide Reading Activity – The Great Depression and the onset of economic change.

INDUSTRIAL GROWTH AND OVERPRODUCTIONThe increase in productivity in the United States reflected our new ability to manufacture goods, which had been improved during the Great War. Refrigerators, radios, automobiles, and household appliances were being produced and sold to new markets. However, increased productivity would result in a surplus of supply – overproduction – which inevitably caused prices to drop, and company profits to decline.

Refrigerators Automobiles

Consumers rely on credit.

• Installment Buying – buying products on credit. Customers could pay for a product by putting a little money down, and then paying off a little bit each month until the bill was settled.

Labor Reducing Household Appliances

The Washing Machine The Vacuum Cleaner

Government Policies to Stimulate the Economy• The United States government maintained HIGH TARIFFS which

protected American companies. A tariff added a tax to the price of any goods which were made in foreign countries. So a washing machine or vacuum made in England, for example, would cost more than the American made Hoover vacuum. Since most consumers will purchase the cheaper of two relatively equal products, this encouraged sales of American products.

• The US government also LOWERED TAXES on wealthy people, which were extremely high at the time. This allowed rich Americans to spend more of their money – hopefully on American made goods which would benefit companies across the country.

• Whether or not these policies helped the economy or hurt it is still a hotly contested point of debate.

A Bull Market• A “Bull Market” is

one characterized by the rising value of stock prices. When Wall St. is characterized as a “Bull Market,” investors and stockholders are usually very happy!

A Bear Market• The opposite of a bull

market is a bear market – one where stock prices are in decline, values are unsteady, and stockbrokers are in a state of anxiety.

The Stock Market

Buying “on the Margin”Buying “on the margin” is a process that involves borrowing money in order to purchase stock. In some cases, investors paid less than 10% of the value of the stock – then borrowed close to 90% of the money required to buy the shares they wanted. Banks provided stockbrokers and investors with the money they needed to purchase stock.

If the value of the stocks continued to improve over time, the investors could pay off their debts and make money.

But if the stock’s value failed, the investors lost their money. And, to make matters worse, they had to pay back the money they had borrowed – nine times what they had invested themselves. If they failed to pay their debts, problems began.

A Warning, Impending Doom

“However, by 1928, some economists began to worry. High stock prices seemed to have little to do with the actual value of the company that issued them. A few experts warned that the stock market was overvalued. But investors mostly ignored the warnings.”

Overproduction by Farmers• Farmers produced more crops

than Americans could eat – overproduction.

• Usually, European markets bought American grains – but after World War I, those nations were too in debt to purchase these goods.

• Farmers had borrowed enormous sums of money from banks to invest in machinery and more land – now, they could not repay their own debts.

The Assembly Line

The Impact of Assembly Lines• Although some companies were able to create high quality

jobs by using the assembly line, like Ford Motor Company did during the 1920s and throughout most of the twentieth century, the overall impact of the technique was to reduce the need for skilled laborers.

• Most people could be trained to do whatever jobs were asked of them on an assembly line. The need for skilled laborers, individuals with a specific set of job skills like carpenters, blacksmiths, mechanics, or electricians, was reduced.

• Unskilled laborers could accomplish more work, perhaps, but they could not command a high wage. Therefore, high paying jobs usually disappeared as technology was introduced to the workplace.

The Election of 1928The Happy Warrior: The Catholic, Democratic Candidate, Al Smith

Promising “A Chicken in Every Pot,” Republican Herbert Hoover

President Herbert Hoover