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:
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