Given that the primary cause of the Great Depression was that lending for productive purposes virtually disappeared, it is a tribute to the strength of the U.S. economy at that time that unemployment only went to about a quarter of the workforce. Most business financing was coming from reinvesting profits instead of new debt or equity. Even so, the fall in consumption power that resulted from the drop in production reduced the profits that businesses needed to pay workers, many of which were laid off in consequence.
Had businesses been able to borrow for working capital to make up for the fall in profits, the economic downturn would likely have been of extremely short duration. The banks, however, weren't lending because businesses didn't have adequate collateral — if any at all. Kelso's concept of capital credit insurance would have tied the economy over the hump.
Capital credit insurance wouldn't have done anything to address the underlying problem, however, which was lack of widespread capital ownership. The stock market crash itself was (although this sounds shocking) a problem that affected what should have been a relatively minor market sector, the secondary market for equity and debt. This eroded the value of collateral and the creditworthiness of businesses, but did not affect the consumption income of ordinary people.
The most important factors affecting consumption income were the displacement of human labor from the production process and the lack of widespread capital ownership. Moulton noted that between 1919 and 1929 the number of people engaged in the direct production of marketable goods and services declined rapidly. At the same time the number of jobs mushroomed.
This was because the increasing productivity of capital and the greatly expanded market required an enormous increase in the need for logistical and administrative support — jobs from which people are now being displaced by technology at an even faster rate than they were from direct production.
The consequence was that every job involving direct manufacturing that disappeared involved a multiple of jobs lost in a ripple effect throughout the economy. You don't need typists or stenographers when there are no letters to write, nor do you need salesmen or even stores when there's nothing to sell. One farmer or factory worker provided jobs for more than just him- or herself. Without bank credit in the short run, and capital ownership in the long run, the impact on the economy was devastating.
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