1920’sEconomics & Politics

President Harding • “Return to

Normalcy” – (life before WWI)

• "America first" – campaign

encouraged

industrialization

• Teapot Dome

Scandal

Coolidge President

• Harding died of

heart-attack

• Coolidge

finished

Harding’s

election

• Ran for the

next term

(1924) and won

Laissez

Faire

Economics

Laissez-Faire Economics

• “Chief business of American

people is business”

• Fueled economic boom of 1920’s

• Wouldn’t even assist flood victims

–He said that government had no duty

to protect citizens “against the

hazards of the elements”

–Drew criticism from those who saw it

as a failure to take action

Click on the quote for a video clip

about business in the 1920s.

Kellogg-Briand Pact

• Coolidge wanted peace and

stability without getting involved in

international affairs (Isolationism)

• Allowed Secretary of State, Frank

B. Kellogg, to make all foreign-

policy decisions

• Made pact with 15 nations –

pledged not to use the threat of war

in their dealings with one another

Election of 1928

• Coolidge “I do not choose to

run for President in 1928”

• Republican: Herbert Hoover

(Protestant/against prohibition)

• Democrat: Alfred E. Smith

(Catholic/supported

prohibition)

• Hoover wins by 6 million votes

Consumer Economy• 1914-1926: Wages rose over 28%

• # of millionaires doubled

• Economy depended on large

amounts of spending

Increased

Spending

Increased

WagesIncreased

Profits

Consumer Economy

• Traditionally = only

bought what they

needed

• What sparked

increased

purchasing?

–Higher wages, clever

ads, new products,

lower costs, and

availability of creditClick on the image for a video clip about new technologies in the 1920s.

Consumer Economy

• Buying on Credit

–needed to make new expensive, large products easier to buy

–Need/want for modern convenience –Advertising

• Electric Power: all new technologies required electricity

–Rise from 16% to 63%

–Increase in availability; Still not in the country

Consumer Economy

• Advertising: created because

producers faced real

competition mass-media

advertising

• Productivity: rise in GNP

(Gross National Product)

–Value of goods and services a

country produces

Ford & the Automobile• 1st made in Germany (1880’s)

• 1892-1920: 8 million

• 1920’s: 15 million

• Increase production/purchasing due

to Ford’s efficient use of the

assembly line

• Assembly line reduced costs and

allowed price to drop

• Vertical consolidation: owned all

phases of production

Gas Stations appear in 1913

Auto industry spurred many other industries

Industrial Growth

• Automobile created new

industries and jobs

–Oil, Rubber, Glass, Steel, and

Leather

–Gas stations, garages, motels

“motor hotels,” car dealerships,

campgrounds and restaurants

Bypassed by Boom• Most Americans enjoyed prosperity

• Unskilled laborers, African

Americans and immigrants

remained poor

–Wages and working conditions did

not change

–Farmers lost foreign markets after

WWI

–During good times farmers bought on

credit many couldn’t pay back loans

The end of The 1920’s

Factors leading to the

Stock Market Crash of 1929

Economy Appears Healthy• 1925 – Market value of all stocks = $27 bil.

1928 – Market value of all stocks = $38 bil.

1929 – Market value of all stocks = $87 bil.

• People had unusually high confidence in the

business world during the 1920’s

• Welfare Capitalism: new approach to labor

relation

– A way to prevent strikes and keep productivity

high

– Offered health plans, paid vacations, rec.

programs and English classes for immigrants

Economic Danger Signs• Rich got richer

• 71% of the population’s avg. income was

less than $2,500

• 0.1% of the population’s avg. income was

more than $100,000

• 80% of the population had no savings

PROBLEM: Most people are in debt “up

to their eyeballs” because of the availability

of credit

They honestly believed that they could

count on future income to cover their debt.

Playing the Stock Market

• “Get rich quick” attitude

• Rise in stock market prices led to

widespread speculation

– Practice of making high risk investments

in hopes of getting huge returns

• Repeat of the Gold Rush

– Newspapers reported of ordinary

people/small investors making fortunes

Warning! Warning!

• Many small investors entered the market, often spending their life savings

• Buying on the margin

– Allowed investors to purchase a stock for only a fraction of its price (10-50%) and borrow the rest

–Broker charged high interest rates and could demand the money at any time

–If the stock went up, they could “sell high” and pay off interest and loan while making big profits

More Problems

• Too many goods, Too little

demand

–Many companies were

overstocked – held more goods

than consumers would buy

Signals of Trouble Ahead

• Uneven wealth

• Rising debt

• Stock speculation

• Overproduction

• Hardships of farmers and

workers