As pointed out in previous chapters, all major factors contributing to the depression can be traced back to the United States of America: the handling of war debts, the sterilisation of gold, a deflationary monetary policy after an expansionist period, protectionism and the overproduction of wheat. All these factors were due to long term developments, but they were accentuated by the sudden crash of the stock market in October 1929 which undermined the world credit system and thus was the proximate cause of the depression. Before turning to the impact of the depression on other countries we must first analyse its origin in America. All other countries imported the depression. But, of course, they also had their indigenous problems which were magnified by it.
An analysis of the causes of the depression in the United States must begin with an examination of the internal economic situation in that country. It was characterised by a very uneven distribution of income, a concentration of capital and a lack of further prospects for productive investment. Instead there was an increase in speculation in the stock market which greatly strained the system of financial intermediation which was still rather disorganised and unregulated. There were also other structural problems of the American economy which have to be kept in mind. In thinking of the United States as a premier industrial country we tend to overlook the fact that around 1930 nearly half of the population lived in rural areas and was either directly or indirectly dependent on agriculture. The farm lobby was of enormous political significance and American fiscal policy was therefore bound to be influenced by that fact. Moreover, ‘big government’ did not yet exist at that time and thus the effectiveness of fiscal measures was rather limited. The federal government claimed only 2.5 per cent of