The Economy of the late 1920’s

Positives Number of infant deaths down

Life expectancy increased to 59 for men, 63 for women

Economy appeared healthy

Many assumed the prosperity would continue

Economy Coolidge, “I do not choose to run for President in 1928”

Hoover easily wins against his opponent, Al Smith; anti-Catholic sentiments aided Hoover’s win

Hoover promises to preserve “rugged individualism”

Hoover largely followed Coolidge’s economic policies

Public thought prosperity would continue under him

In 1925, all stocks were valued at $27 billion

In 1928 alone, value went up $11 billion

By early October 1929, stock values were at $87 billion!!

Other positives Since 1914, workers’ wages rose by 40%

Unemployment was under 4%

Almost everyone’s basic needs: food, clothing, shelter: were being met

Investing lots of income was seen as normal

Buying on credit was popular; people were buying luxury items, things they didn’t necessarily need

Welfare Capitalism Strategies by businesses to meet the needs of their workers

Could avoid union intervention, prevent strikes, keep productivity high

Paid vacations, health plans, recreation programs, and more

As a result, organized labor lost members in 1920’s

Signs of Trouble! Most not seen until later…too late!

1. Uneven prosperity

-rich got richer

-big corporations, not small businesses controlled industry

-200 companies controlled 49% of industry in US

-the top 0.1% of families had 24% of wealth!

Uneven Prosperity In addition, 71% of families earned less than $2,500 a year

80% of families had NO savings

Also, taxes were cut, which at the time only the rich paid, so they benefitted by big tax cuts!

2. Personal Debt Credit, installment plans, whatever to buy new products

60% of automobiles & 70% of furniture bought this pay No money to pay for them!

Most felt future income could pay for current debt

Prosperity led to frivolous spending

3. Playing the Stock Market Speculation in the market was big, “Get Rich Quick” attitudes

Big risks in hopes of a huge return

All types of incomes were trying it

Buying on margin: less wealthy would buy 10-50% of a price of a stock, and borrow the rest

Brokers charged high interest rates and could demand payment at any time

Borrowers could sell anytime and make enough to pay off loan and broker, and still make $$!

Market was largely unregulated

4. Too many goods, too little demand Warehouses overstocked in US

More goods than consumers could buy

Industries slowed in late 1920’s as a result

Auto industry slumped after 1925

Steel, rubber, glass also declined as a result

Housing construction fell 25% in 1928-1929

5. Trouble for Farmers and Workers Farms were failing due to low prices for goods

Overproduction Europe returned to growing its own crops

Rural banks would give farmers more time to pay loans, but if they didn’t, they could close

6,000 rural banks closed in late 1920’s: BEFORE the crash!

Coolidge vetoed a bill TWICE that would help farm prices increase: BAD MOVE

5. Continued Laborers often still worked long hours for low wages

Bad conditions still in coal and textiles

Women in TN mills worked 56 hours a week at 16-18 cents an hour: $10 a week!