7. Economy of the 1920's

Below I have listed a few different types of investments you might come across.  Please take a few minutes in your tables to match up the types of accounts (in purple) with the descriptions (in red).  We will discuss them as a table.

1. Savings account 

2. Stocks

3. Bonds

4. Mutual Funds

5. Land (property)

a. Pooling money to have experts select stocks for you

b. A great long term investment 

c. You can not lose money. The government makes sure of that

d. You own the company

e. Let's borrow some money from the government

Terms you NEED to know:

Bull Market- A market (stock market) in which the prices are high and people are making money

Bear Market- A market in which prices are low and people are losing money

Skip the Prezi for now. We'll cover it another time.

https://prezi.com/rq_ayeulsbx4/investing/?present=1

NEXT STEP

A brief overview of 1920's Economics

What Is Buying on Margin?

Buying on margin occurs when an investor buys an asset by borrowing the balance from a bank or broker. Buying on margin refers to the initial payment made to the broker for the asset—for example, 10% down and 90% financed. The investor uses the marginable securities in their broker account as collateral.

Buying on Margin Example

To see how buying on margin works, we are going to simplify the process by taking out the monthly interest costs. Although interest does impact returns and losses, it is not as significant as the margin principal itself.

Consider an investor who purchases 100 shares of Company XYZ stock at $100 per share. The investor funds half the purchase price with their own money and buys the other half on margin, bringing the initial cash outlay to $5,000. One year later, the share price rises to $200. The investor sells their shares for $20,000 and pays back the broker the $5,000 borrowed for the initial purchase.

Ultimately, in this case, the investor triples their money, making $15,000 on a $5,000 investment. If the investor had purchased the same number of shares using their own money, they would only have doubled their investment from $5,000 to $10,000.

Now, consider that instead of doubling after a year, the share price falls by half to $50. The investor sells at a loss and receives $5,000. Since this equals the amount owed to the broker, the investor loses 100% of their investment. If the investor had not used margin for their initial investment, the investor would still have lost money, but they would only have lost 50% of their investment—$2,500 instead of $5,000.

Full article can be found here if you want to read more about it  (not required)

    Ignore what was said in the video. Please answer these questions (and the ones on the bottom of the page) on paper or in a doc and post to google classroom. Anything in RED should be answered and turned in.

Explain what buying on margin means. (This was explained in the video, at length).

Next read the following passage. You may do so in pairs (the person sitting next you in your assigned seat), or individually. You are all responsible for turning in your own copy of answers to the questions.

By the end of the 1920s, Americans were overwhelmed by the rise of a modern consumer culture. In response, many of the bitter cultural tensions that had divided Americans had begun to subside. The growth of exciting new opportunities to buy cars, appliances, and stylish clothing made the country's cultural conflicts seem less significant. The collapse of the new economy at the decade's end would generate economic debates as intense as the cultural conflicts of the early and mid-1920s.

Americans in the 1920s were the first to wear ready-made, exact-size clothing. They were the first to play electric phonographs, to use electric vacuum cleaners, to listen to commercial radio broadcasts, and to drink fresh orange juice year round. In countless ways, large and small, American life was transformed during the 1920s, at least in urban areas. Cigarettes, cosmetics, and synthetic fabrics such as rayon became staples of American life. Newspaper gossip columns, illuminated billboards, and commercial airplane flights were novelties during the 1920s. The United States became a consumer society.

Two automotive titans, Henry Ford and Alfred Sloan, symbolized the profound transformations that took place in American industry during the 1910s and 1920s. In 1913, the 50-year-old Ford had revolutionized American manufacturing by introducing the automated assembly line. By using conveyor belts to bring automobile parts to workers, he reduced the assembly time for a Ford car from 12 ½ hours in 1912 to just 1 ½ hours in 1914. Declining production costs allowed Ford to cut automobile prices six times between 1921 and 1925. The cost of a new Ford was reduced to just $290. This amount was less than three months wages for an average American worker. It made cars affordable for the average family. To lower employee turnover and raise productivity, Ford introduced a minimum wage of $5 in 1914 (twice what most workers earned) and shortened the workday from nine hours to eight hours. Twelve years later, Ford reduced his work week from six days to five days. Ford demonstrated the dynamic logic of mass production: that expanded production allows manufacturers to reduce costs, and therefore, increases the number of products sold; and that higher wages allow workers to buy more products.

Alfred Sloan, the president of General Motors from 1923 to 1941, built his company into the world's largest automaker, not by refining the production process, but by adopting new approaches to advertising and marketing. Sloan summed up his philosophy with these blunt words: "The primary object of the corporation was to make money, not just to make cars." Unlike Ford, a farmer's son who wanted to produce an inexpensive, functional vehicle with few frills (Ford said that his customers could have any color that they wanted as long as it was black), Sloan was convinced that Americans were willing to pay extra for luxury and prestige. He advertised his cars as symbols of wealth and status. In 1927, he introduced the yearly model change to convince motorists to trade in old models for newer ones with flashier styling. He also developed a series of automobile divisions, differentiated by status, price, and level of luxury. Hence, Chevrolets were less expensive than Buicks or Cadillacs. He set up the nation's first national consumer credit agency in 1919 to make his cars affordable. If Henry Ford demonstrated the efficacy of mass production, Sloan revealed the importance of merchandising in a modern consumer society.

Cars were the symbol of the new consumer society that emerged in the 1920s. In 1919, there were just 6.7 million cars on American roads. By 1929, there were more than 27 million cars--or nearly one car for every household in the United States. In that year, one American out of every five owned a car, compared to one out of every 37 English and one out of every 40 French car owners. Car manufacturers and banks encouraged the public to buy the car of their dreams on credit. Thus, the American love affair with the car began. In 1929, a quarter of all American families purchased a car. About 60 percent bought cars on credit, often paying interest rates of 30 percent or higher.

Cars revolutionized the American way of life. Enthusiasts claimed that the automobile promoted family togetherness through evening rides, picnics, and weekend excursions. Critics decried squabbles between parents and teenagers over use of the automobile and an apparent decline in church attendance resulting from Sunday outings. Worst of all, charged critics, automobiles gave young people freedom and privacy, serving as "portable bedrooms" that couples could take anywhere.

The automobile also transformed the American landscape, quickly obliterating all traces of the horse and buggy past. During the 1920s, the country doubled its system of roads and highways. The nation spent over $2 billion annually building and maintaining roads. By 1929, there were 852,000 miles of roads in the United States, compared to just 369,000 miles in 1920. The car also brought pollution, congestion, and nearly 30,000 traffic deaths a year.

The automobile industry provided an enormous stimulus for the national economy. By 1929, the industry produced 12.7 percent of all manufacturing output, and employed one out of every 12 workers. Automobiles, in turn, stimulated the growth of steel, glass, and rubber industries, along with the gasoline stations, motor lodges, campgrounds, and hot dog stands that dotted the nation's roadways.

Alongside the automobile, the telephone and electricity also became emblems of the consumer economy. By 1930, two-thirds of all American households had electricity, and half of American households had telephones. As more and more of America's homes received electricity, new appliances followed: refrigerators, washing machines, vacuum cleaners, and toasters quickly took hold. Advertisers claimed that "labor saving" appliances would ease the sheer physical drudgery of housework, but they did not shorten the average housewife's work week. Women had to do more because standards of cleanliness kept rising. Sheets had to be changed weekly. The house had to be vacuumed daily. In short, social pressure expanded household chores to keep pace with the new technology. Far from liberating women, appliances imposed new standards of cleanliness.

Ready-to-wear clothing was another important innovation in America's expanding consumer economy. During World War I, the federal government defined standard clothing sizes to help the nation's garment industry meet the demand for military uniforms. Standard sizes meant that it was now possible to mass produce ready-to-wear clothing. Since there was no copyright on clothing designs until the 1950s, garment manufacturers could pirate European fashions and reproduce them using less expensive fabrics.

Even the public's eating habits underwent far-reaching shifts. Americans began to consume fewer starches (like bread and potatoes) and to consume more fruit and sugar. But the most striking development was the shift toward processed foods. Instead of preparing food from scratch at home (plucking chickens, roasting nuts, or grinding coffee beans), an increasing number of Americans purchased foods that were ready-to-cook. Important innovations in food processing occurred during World War I as manufacturers learned how to efficiently produce canned and frozen foods. Processed foods saved homemakers enormous amounts of time in peeling, grinding, and cutting.

Accompanying the rise of new consumer-oriented businesses were profound shifts in the ways that businesses operated. To stimulate sales and increase profits, businesses expanded advertising, offered installment credit, and created the nation's first regional and national chains.

The nation's first million-dollar advertising campaign (Uneeda Biscuits in a waterproof box) demonstrated advertising's power. Before the 1920s, most advertisements consisted of vast expanses of print. Absent were brand names, pictures, or catch phrases. During the 1920s, advertising agencies hired psychologists (including John B. Watson, the founder of behaviorism, and Edward Bernays, Sigmund Freud's nephew) to design the first campaigns. They touted products by building-up name brand identification, creating memorable slogans, manipulating endorsements by doctors or celebrities, and appealing to consumers' hunger for prestige and status. By 1929, American companies spent $3 billion annually to advertise their products--five times more than the amount spent on advertising in 1914.

Installment credit soared during the 1920s. Banks offered the country's first home mortgages. Manufacturers of everything--from cars to irons--allowed consumers to pay "on time." About 60 percent of all furniture and 75 percent of all radios were purchased on installment plans. In contrast to a Victorian society that had placed a high premium on thrift and saving, the new consumer society emphasized spending and borrowing.

A fundamental shift took place in the American economy during the 1920s. The nation's families spent a declining proportion of their income on necessities (food, clothing, and utilities) and an increasing share on appliances, recreation, and a host of new consumer products. As a result, older industries, such as textiles, railroads, and steel, declined, while newer industries, such as appliances, automobiles, aviation, chemicals, entertainment, and processed foods, surged ahead rapidly.

During the 1920s, the chain store movement revolutionized retailing. Chains of stores multiplied across the country, like Woolworth's, the five-and-dime chain. The largest grocery chain, A&P, had 17,500 stores by 1928. Alongside drugstore and cigar store chains, there were also interlocking networks of banks and utility companies. These banks and utilities played a critical role in promoting the financial speculation of the late 1920s, which would be one of the causes for the Great Depression.

Copyright 2016 Digital History

In your groups, see if you can find things that started in the 1920s that effect us now.  Make a list of at least three or four. 

Then, answer the following questions and turn them into Google Classroom:

1. Ford and Sloan took different approaches in making money from selling cars. What did each do to maximize their profits?

2. What kinds of changes did the people of America make in what they bought? Why would they make these changes?

3. What is installment buying and how does it help to sell things?

1.-C 2,-D 3.-E 4.-A  5.-B