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The 1920s appeared prosperous as the American economy thrived, with a significant rise in the Gross National Product and high employment rates. Many Americans invested in the booming stock market, often using credit. However, underlying issues such as wealth inequality and unsustainable credit practices led to the stock market crash in October 1929. Events like Black Thursday and Black Tuesday caused massive sell-offs, resulting in millions lost and the closure of banks and businesses, leading to widespread economic devastation throughout the nation.
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Do now If you lost all your money in the stock market, what would you do?
Appearance of Prosperity • For people on the outside looking in, the American economy looked great • 1922-1928: Gross National Product rises 30% • Thus, companies were mass producing goods • Example: 1 in 5 Americans owned a car • Rubber, Glass, Metal industries all flourished as well
Unemployed? Not here….. • From 1923-1929: Unemployment rate 3% • Employees worked less and got paid more due to welfare capitalism • Many were able to: • Buy the products they produced • Go to movies • Go to sporting events
So, What’s a stock? • With all this extra money, ordinary Americans invested in the stock market • Stock: 1 share of ownership in a company • If the corporation does well, the value of the stock goes up • If the corporation fails, the value of the stock plummets
Why did people invest? • Stock market was flourishing in the 1920’s • Value of Dow Jones Stock Exchange quadrupled • Many people began investing their life savings in the stock market • Number of stocks trade on the market goes from 318 million to over 1 billion stocks in the 1920’s
Election of 1928 • Herbert Hoover, Republican • Alfred E. Smith, Democrat
Hoover vs. Smith • Hoover: • Shy, Quiet • Quaker • Supports Prohibition • Smith • Outgoing • Catholic • Against Prohibition
Economic Weaknesses • Uneven distribution of wealth • 1% of Population hold wealth • Americans bought goods on credit • Radios, TVs, Etc • By end of decade, people reach end of credit • Buying stocks with credit also • Stocks rise sharply due to this • Known as buying on margin
The Federal Reserve • Serves as the Nation’s Central Bank • Decides to make it harder for brokers to offer stocks on margin- do not give money as loans to brokers • However, Companies decide to make loans to brokers instead
Warning factors of the Crash • Sales of goods sagging • Rumors were that investors were going to pull their money out of the market
Black Thursday • October 24th, 1929 • Some investors began selling stocks • Others noticed the activity • They begin selling • Huge sell-off had begun. Nobody bought the stocks, Prices plunged.
To stop the collapse….. • House of Morgan: Wealthy Investors • Buy up all the stocks to stop the panic, • However, they sell stocks at the start of the day on Monday, 28th • On Tuesday 29th, panic ensues again • Known as Black Tuesday • Market’s value drops 16 Billion Dollars
Effects on the Nation • People lost millions • Many invested life savings in market • Many banks closed • Made loans to Stockbrokers and invested in the market • Businesses closed • Banks could not make loans, people could not buy goods • As a result, businesses could not hire people
