Economy of the 1920sThe Calm before the Storm

Mr. MizakModern American History

The Economy Appeared Healthy

• 1925 the market value of all stocks was $27 billion

• For the next few years stocks soared– 1928 stock values rose by >11 billion

• This led to high confidence in the economy• Belief that “everybody ought to be rich”– Welfare capitalism– Similarity to today?

Signs of Danger

• Despite the prosperity on Wall Street, it was the rich who got richer

• Small % of the nation held the majority of the wealth

• .1% of the population held 34% of the nation’s wealth

• Many Americans got used to buying on credit– Is this still common today?

Playing the Stock Market

• Before the 1920s only the rich played the stock market.– Due to the prosperity of the 1920s, many middle-

low class individuals started to invest• Terms to know (define them in your notes)– Speculation– Buying on margin

Lets Take a Look at the Stock Market

Stocks

• Corporations are formed by selling shares of stock.

• By selling stock a company obtains funds for use in expanding business and (hopefully) making a larger profit

• Shares entitle the buyer to a certain part of the future profits of the company

Stock Returns

• On stocks money is made in two ways• 1) Dividends- money given to a stockholder on

the amount of money originally invested in the company

• 2) Individual sells the stock for more than they paid for it.

Bonds

• Bond- A certificate issued by a company or the government in exchange for borrowed money.

• Bonds pay a stated rate of interest over a stated period of time

• Buying bonds does not make a bondholder part owner of the company