Structural Causes and the Global Spread of the Depression

Historians and economists identify a dense web of structural causes behind the Depression, beyond the crash itself. Industrial and agricultural overproduction had outpaced genuine demand, worsened by income inequality that limited the purchasing power of ordinary consumers, while both speculators and consumers had taken on excessive debt. The American banking system remained fragmented into thousands of small, undercapitalized 'unit banks' with no strong central lender of last resort, and the Federal Reserve compounded matters with a 1928-29 credit contraction intended to cool speculation that instead helped choke off the wider economy. A rigid international gold standard limited governments' ability to respond with expansionary policy, agricultural prices had already been falling since the mid-1920s, and short-term, easily revocable German loans -- the so-called 'swallow credits' -- proved especially destabilizing once withdrawn.