Economics in the 1920s

From Boom to Bust

Investors

• The 1920s was a time of prosperity and cultural revolution in North America,

• 1 in 2 Canadian families owned a car by 1928• By 1929, over 60% of Canadians had electricity

in the home.• The government did not regulate the stock

market so investors could invest however they wanted

• This was known as Laissez-faire capitalism

The Stock Market

• By the 1920s many businesses were too large to be owned by just one person or family

• When the companies needed money, they sold shares to investors

• Share prices were determined by supply and demand

• If a stock was popular its price rose• If more people wanted to sell, the price fell

Investors Part 2

• Careful investors would investigate the company’s prospects before investing in their stock

• Stock values went up dramatically throughout the 1920s

• Investors made huge profits on paper• The cost of a company’s stock had no

relationship to their actual earnings

Taking Risks

• Compared to the general public, the actual number of investors was low

• Most people saw the stock market as a “get rich quick” scheme

• Investors bought on margin paying the broker only 10-15% of the price of the shares

• When the stock rose, they would pay the difference with the profits

• If the stock fell, the broker could make a margin call and the investor would have to pay back all the money they owed

• No one worried about margin calls because the stock market was growing too fast

Consumerism

• Canadians became “buy now, pay later” consumers

• Retailers encouraged people to “buy on time” so they could pay for their purchases over two to five years with a small down payment

• This encouraged people to buy more and more products and retail businesses were very successful

Those Who Didn’t Prosper

• Life was harder for immigrants who did not speak English and had few job skills

• Employers took advantage of them paying as little as possible

• Women were paid less than men for doing the same job• Companies made huge profits but did not pass that on

to their employees• Many workers could not afford to buy the products they

were making leading to surplus goods piling up in warehouses and stores

Warning Signs

• Most people though the booming 1920s would last forever

• Some economists saw the danger signals• The rich got richer while workers,

immigrants, and farmers did not have enough money to buy their share of the goods