The Optimism of the 1920s Concealed Problems in the

American Economic System

Question: How Strong was the American Economy in the

1920s?

The United States Economy Grew During WWI

United States’Industries

Telephone Sewing Machine

United States’ Industries

Radio Ice Box

Everyone Wanted the New Inventions, so Radios and Washing

Machines Were Bought with “Pay As Machines Were Bought with “Pay As You Go”.

CarsIn 1916 the United States produced one million cars.

In 1920 the United States produced fourmillion cars.million cars.

In 1929 the United States produced 26 million cars.

What is Another Word for “Pay As You Go”?

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Many people chose to invest in the stock market.

Buying on Margin

• Many people who wanted to buy stocks soon began to buy on margin.

• In 1927 the average price of a stock was selling at $85 a share.

• By 1929 the average price of a stock had grown to $216 a share.

Summarize

• In your own words, summarize how buying stocks on margin was a problem. buying stocks on margin was a problem.

Question: Why did the Stock Market crash?

• In 1929 only about one out of every ten Americans even owned stocks.

• Most Americans making about $1,000 a year. They simply could not afford to buy stocks.

Banks invested the money people had saved in them in the stock market. They didn’t

need to ask the investors’ permission.

• In the 1920s this was perfectly legal.

The Crash

The Crash

• With the value of stocks now at pennies on the dollar, the money supporting businesses across America disappeared.businesses across America disappeared.

The Crash

• When the money supporting these businesses disappeared, so did the jobs they provided.they provided.

• Between 1929 and 1932 more than 100,000 businesses closed.

• All those jobs were gone…

• This created a run on banks as people panicked and rushed to pull out their life savings.

• With no money to operate, banks began to fail.to fail.

In 1929 630 banks closed their doors.

In 1930 1,352 banks closed their doors.

In 1931 2,994 banks closed their doors.

• Because there was no banking insurance, everyone who had money in the bank simply lost it.simply lost it.

• More than $1,000,000,000 in savings simply disappeared.

• By 1932, the United States was producing half of what it had before the crash.

• One out of every four people was unemployed.

The Great Depression was on its way…

Summary: Causes of the Great Depression

1. People over-speculated on stocks, using borrowed money that they could not repay borrowed money that they could not repay when stocks crashed

Summary: Causes of the Great Depression

2. The Federal Reserve failed to prevent the collapse of the banking system

Summary: Causes of the Great Depression

3. High Tariffs Discouraged International Trade

$150.00

Made in Great Britain, 1930