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Typically, historians argue that overproduction helped to cause the Great Depression. The reason for this is that the firms produced too many goods in the 1920s when times were good. Eventually, they ran out of customers and had to start laying workers off.
During the 1920s, more and more goods were being produced. Companies were learning how to use assembly lines and other efficient methods of production. This allowed them to produce more. Consumer demand was rising and it seemed to the firms that it would continue to rise. More and more homes were getting electricity and could therefore use new appliances. Retailers were selling on credit so that more people could afford to buy even if their incomes were really not up to paying for the goods. All of this led to overproduction.
By 1929, the firms had produced too many goods and they were starting to pile up in inventory. This meant that the firms had to start laying workers off since they could not sell the products anymore. Then, when the crash hit, even fewer people bought and more workers were laid off.
In these ways, overproduction is often cited as a major cause of the Depression.
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