In 1929, after a decade of economic growth, more than half the families in America lived on the edge of or below the minimum subsistence level. Thus, they were too poor to buy the goods the industrial economy was producing. As industrial and agricultural production increased, the proportion of the profits going to farmers, workers, and other potential consumers was too small to create a sufficient market for the goods the economy was producing. Some economists have suggested that the Great Depression was the result of "underconsumption" as a result of changes in the American economy during the 1920s1. Labor production grew rapidly due to technological advances and managerial improvements, but this increase was not reflected in rising wages. Therefore, the ability to produce goods exceeded the means to buy them. Consumption failed to keep up with production and the tendency to consume fell.
A second factor was a lack of diversification in the American economy in the 1920s2. Prosperity had depended on a few basic industries, particularly construction and automobiles. In the late 1920s, those industries started to decline. The automobile industries" sales fell by more than a third in the first nine months of 1929. Other industries were arising to make up for this decline including petroleum, chemicals, and plastics. However, these industries had not yet developed enough strength to offset the decline in other areas.
Another major problem leading to the depression was the credit structure of the economy2. Farmers were in debt, their land was mortgaged, and crop prices were too low to allow them to pay off what they owed. Banks, especially the ones that were tied to the agricultural economy, were in constant trouble in the 1920s as their customers failed to pay on their loans. Many of the banks failed. When the stock market crashed, some banks made the crisis worse by calling in loans that borrowers were unable to pay.