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How Did Overproduction Affect The Economy Of The Early 1920's

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The early 1920’s were a lavish time. People of the time were living off the quote: “Forget about the war and live for today…spend, travel, dine, dance. Dash off to Florida, California, Europe. Buy expensive automobiles, luxurious houses, and fancy jewelry. Throw money around, but forget about the war.” Life Magazine The ways of the Old America were fading and the wild New American ways, “The New View”, were busting out. Our 31st President, Herbert Hoover was in agreement with these new ideas and believed that we would abolish poverty, and the economy would not falter. Everything came grinding to a halt on October 29th, 1929 now infamously known as, “Black Tuesday”; the stock market crashed as a record number of stocks traded that day because …show more content…

Right after WWI, while Americans were spending money as if they were growing it in their own backyard, industries had to increase supply for the initial massive demand. Industries continued to take their supply over the edge as demand was quieting which left them with too much product. This caused some companies’ stock price to drop, and loss of jobs which created fear and led people to sell their stocks, which causes stock prices to diminish. Another big sign, that the average American would not know about, is banks and investors were buying on margin. Buying on Margin is extremely dangerous for the economy because it encouraged people to invest with borrowed money thinking the more money they had to invest the more money they would get back. It was like playing with Monopoly money. But when it was time to pay back the stock loans, if the stocks didn’t do well the investors couldn’t pay back the money and everyone was left short. One other warning sign was that when banks called their loans for homes and merchandise, people couldn’t pay. They were allowed to borrow way too much money that they could never possibly pay back. So the banks were left empty handed.This vicious cycle that struck hundreds of business resulting in bankruptcy, and yet another warning sign to the Stock Market

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Rising share prices would simply bring more people into the markets, convinced that it was easy money. In mid-1929, the economy stumbled due to excess production in many industries, creating oversupply. Essentially, companies were able to acquire money cheaply due to high share prices and invest in their own production with the required optimism. By 1933 the value of stock on the New York Stock Exchange was less than a fifth of what it had been at its peak in 1929. Business houses closed their doors, factories shut down and banks failed.

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