A Booming Economy: The 1920’s

Income increases

People purchase more goods

Companies earn higher profits

Companies expand and hire more people

“Boom Cycle”

· Henry Ford used assembly lines to produce cars.

Impact of the Car Industry

Ex.) Model-T 1909 - $850

1916 - $360

1924 - $290

· The efficiency of the assembly line helped to decrease car prices.

The following industries grew as a result of the booming car industry:

construction (roads and bridges)

steelrubber

glass

paint

oil

housing (as the suburbs grew)

· In the 1920’s, people began to purchase items they couldn’t afford through the use of installment buying, or buying on credit.

New Goods for Sale

· Installment buying increased the demand for goods, while consumer debt increased.

· Millions of Americans invested in the bull market, becoming rich as stock prices rose.

Stocks Surge

Buying Stocks on Margin: Scenario A

investor stock broker

Hello, sir. I would like topurchase 100

shares of stock in the Ford

Motor Company. How much is it going

to cost me?

Buying Stocks on Margin: Scenario A

investor stock broker

Well, Ford stock costs

$10 per share. You

want tobuy 100 shares?

Figure it out yourself,

smartguy!

Buying Stocks on Margin: Scenario A

investor stock broker

Ummm…100 shares

x $10 per share

= $1,000.00

Oh, well. I only have $100. I can’t afford 100 shares.

Buying Stocks on Margin: Scenario A

investor stock broker

No, problem! Just give me $100 and you can owe me

the rest!

Buying Stocks on Margin: Scenario A

investor stock broker

Like, how muchwould that be? Let me think…

$1,000 worth of stock - $100 paid

= $900 owed

Alright, it’s a deal!!

Buying Stocks on Margin: Scenario A

investor stock broker

Six months later, Ford stock doubles to $20 per share.

My 100 shares are now worth...

100 shares x $20 per share

$2,000

Buying Stocks on Margin: Scenario A

investor stock broker

That’s great! Now pay me the $900 you

owe me!

Buying Stocks on Margin: Scenario A

investor stock broker

No problemo! It was a pleasure doing business

with you!

Buying Stocks on Margin: Scenario A

investor

Now let’s figure out how much money I made!

$2,000 net worth - $900 owed

$1,100 profit

- $100 initial investment

$1,000 net profit

Buying Stocks on Margin: Scenario B

investor stock broker

Six months later, Ford stock decreases to $1 per share.

My 100 shares are now worth...

100 shares x $1 per share

$100

Buying Stocks on Margin: Scenario A

investor stock broker

Too bad, hotshot! You still owe me

$900!

Buying Stocks on Margin: Scenario A

investor stock broker

But I’m broke! What am I going

to do!

Buying Stocks on Margin: Scenario A

investor stock broker

I don’t care what you do as long as you pay

me back!

* Unquestioned faith in the bull market helped lead to the Great Depression!

· Some people began to buy stocks on margin, which is similar to installment buying.

The Law of Supply and Demand

Honus Wagner baseball card

(1909 )

Demand

Only 50 – 60 Honus Wagner baseball cards exist in the world.

+

+Supply

=

=Price

The card is valuable because of its scarcity. In 2007, a mint copy was sold for $2.35 million.

The Law of Supply and Demand

Hannah Montana stickers

Demand

Available almost everywhere.

+

+Supply

=

=Price

Even though there is a large demand, there is a lack of scarcity. Sells for $1.50.

The Law of Supply and Demand

A small pile of dirt.

Demand

Available almost everywhere.

+

+Supply

=

=Price

No scarcity and no demand. Therefore, this pile of dirt is virtually worthless.

The Law of Supply and Demand

GI Joe Action Figure

(1964 )

Demand

In “good” condition.

+

+Supply

=

=Price

A 1964 GI Joe in good condition is relatively scarce. This one is for sale on Ebay for $350.00

The Other Half: Farmers

Europeans needed food.

They bought U.S. farm products.

U.S. farm prices increased.

U.S. farmers borrowed money to buy more land and supplies.

During World War I:

The Other Half: Farmers

Europeans began to produce their own food again.

The demand for U.S. farm products decreased.

U.S. farm prices decreased.

Farmers could not repay their debts.

After World War I:

PR

OH

IBIT

ION

PROHIBITION One example of the

clash between city & farm was the passage of the 18th Amendment in 1920.

Launched era known as Prohibition

Made it illegal to make, distribute, sell, transport or consume liquor.

Prohibition lasted from 1920 to 1933 when it was repealed

by the 21st Amendment

SUPPORT FOR PROHIBITION

Reformers had long believed alcohol led to crime, child & wife abuse, and accidents

Supporters were largely from the rural south and west

SPEAKEASIES AND BOOTLEGGERS

Many Americans did not believe drinking was a sin

Most immigrant groups were not willing to give up drinking

To obtain liquor, drinkers went underground to hidden saloons known as speakeasies

People also bought liquor from bootleggers who smuggled it in from Canada, Cuba and the West Indies

All of these activities became closely affiliated with …

Speakeasies

ORGANIZED CRIME

Prohibition contributed to the growth of organized crime in every major city

Al Capone –

Chicago, Illinois

famous bootlegger

“Scarface”

$60 million yr (bootleg alone)

Capone took control of the Chicago liquor business by killing off his competition

Talent for avoiding jail

1931 sent to prision for tax-evasion.Al Capone was finally convicted on tax evasion charges in 1931

St. Valentine’s Day Massacre

Valentines Day – February 14, 1929

Rival between Al Capone and Bugsy Moran Capone – South Side Italian

gang

Moran – North Side Irish gang

Bloody murder of 7 of Moran’s men. Capone’s men dressed as cops

Racketeering

Illegal business scheme to make profit.

Gangsters bribed police or gov’t officials.

Forced local businesses a fee for “protection”.

No fee - gunned down or businesses blown to bits

GOVERNMENT FAILS TO CONTROL LIQUOR

Prohibition failed: Why? Government did not

budget enough money to enforce the law

The task of enforcing Prohibition fell to 1,500 poorly paid federal agents --- clearly an impossible task!

Federal agents pour wine down a sewer

SUPPORT FADES, PROHIBITION REPEALED

By the mid-1920s, only 19% of Americans supported Prohibition

Many felt Prohibition caused more problems than it solved

What problems did it cause?

The 21st Amendment finally repealed Prohibition in 1933