Economics of the 1920s

1. HOW DID THE CAR INDUSTRY AFFECT AMERICAN ATTITUDES AND/OR VALUES? 2. EXPLAIN HOW ADVERTISING BECAME MORE OF A PSYCHOLOGICAL APPEAL TO THE CONSUMER, RATHER THAN JUST INFORMATIONAL IN TERMS OF PRODUCT AND PRICE. 3. IDENTIFY TWO POTENTIAL SIGNS OF WEAKNESS, OR “CLOUDS ON THE HORIZON,” IN THE ECONOMY OF THE 1920S. Quickwrite

NEW INVENTIONS PROMOTE PROSPERITY

Electrical transformers  By 1930, 70% of American households had electricity Electric household devices Radios New car technology  Improvements in mass production

New sales techniques at retail stores  Installment plan (buying on credit)  Planned obsolescence  Adding new features to a product that will go out of popularity in a short time, prompting the consumer to purchase the newer version  Use of advertising

She was a beautiful girl and talented too. She had the advantage of education and better clothes than most girls of her set. She possessed that culture and poise that travel brings. Yet in the one pursuit that stands foremost in the mind of every girl and woman – marriage – she was a failure. ~ Listerine Ad

YOUR TURN! DRAW AN ADVERTISEMENT FOR THE FORD MODEL T. BE SURE TO USE PSYCHOLOGICAL METHODS (I.E. PROPAGANDA METHODS!) TO SELL THE PRODUCT.

BUSINESS IS BOOMING = HIRE MORE WORKERS = WORKERS BUY PRODUCTS =BUSINESSES DO BETTER Great sense of security…

“Have you an automobile yet?” “No, I talked it over with John and he felt we could not afford one.” “Mr. Budge who lives in your town has one and they are not as well off as you are.” “Yes, I know. Their second installment came due, and they had no money to pay it.” “What did they do? Lose the car?”

“No, they got the money and paid the installment.” “How did they get the money?” “They sold the cook-stove.” “How could they get along without a cook-stove?” “They didn’t. They bought another on the installment plan.” ~ In the time of Silent Cal

PERSONAL DEBT OUT-PACED INCOME 2 ½ TIMES By 1928, 2/3 of all furniture, phonographs, washing machines on were on credit

If everybody was buying on credit, then the “prosperity” was only ‘imagined’!!

HALF …NEARLY HALF OF AMERICANS LIVED BELOW POVERTY LEVEL In 1929, 60% of the nation’s wealth was owned by 2% of Americans…

PLUS… Not every business prospered

Industries in serious trouble Railroad  Competition from trucks, cars, buses Textiles  Foreign competition  Fashion (less yardage) Coal mining  Increased use of oil, natural gas, hydro. power Agriculture  Overproduction + decreased demand

AND THEN THERE WAS THE STOCK MARKET…

GOAL OF ALL BUSINESS: Not just a profit, but MORE profit! How? By expanding! What does a company need to expand?  MONEY!!! (i.e. Capital)

How can a business get money needed for expansion? 1. Bank loans 2. Loans from investors by selling stocks

Stock Market~ How does it work!? Investors buy stock shares – essentially a loan to the company in order for it to expand When the business grows (hopefully!), investors can sell stock for a profit or keep it and receive dividends

Why did the stock market grow in the 20s? Increased consumer demand for products after WWI  Spent savings and bought on credit Businesses needed to expand to meet the increased demand To expand, businesses needed capital for more raw materials, facilities, machines, and workers  Businesses sold stocks to raise this capital Investors wanted to profit from this business expansion and bought stocks

Let’s see how you do in the 1920s stock market!

Worth of Stock/Interest Expense (if any) Total Money Left (+/-) March 3, 1928 *Start with $2,000 XXXXX March 20, 1928 June 12, 1928 Dec 31, 1928 Nov 13, 1929