A primary factor exacerbating the economic downturn of the 1930s was a significant imbalance between production and consumption. After a period of robust economic growth during the 1920s, productive capacity far outstripped the ability of the population to purchase goods and services. This shortfall in demand stemmed from various factors, including unequal income distribution, stagnant wages for many workers, and overreliance on credit, creating a scenario where the market became saturated with unsold products. For example, factories continued to produce goods at pre-crash rates, while consumer buying power diminished, leading to massive inventories.
The consequences of this disparity were far-reaching. As inventories accumulated, businesses were forced to curtail production, leading to layoffs and further reductions in consumer spending. This created a negative feedback loop, where declining sales led to job losses, which further decreased demand, amplifying the initial problem. Moreover, the lack of sufficient purchasing power left a substantial portion of the population vulnerable to economic shocks. The absence of a strong social safety net exacerbated this vulnerability, preventing many from maintaining a reasonable standard of living and further constricting consumer demand.
