At the end of World War 1, the US economy began to boom.
The increased wealth was not distributed evenly between the rich and the poor - the rich got richer, the poor got poorer.
Uneven distribution also occured between the manufacturing industry and agriculture. Manufacturing industry recorded massive profits, where as agriculture suffered.
Manufacturing productivity increased to the point of over-supply of goods. The poor (approximately three quarters of US population at the time) would spend there entire income on necessities, and the rich spent only a small proportion of their earnings.
Due to the oversupply, US President at the time, Calvin Coolidge, introduced the credit system and the poorer people began buying what they couldn't afford, attempting to make repayments in installments.
Not surprisingly, the total outstanding credit between 1925 and 1926 increased from $1.38 billion to $3 billion.
In the manufacturing industry, average output per worker increased 32%, but average wages increased by only 8%.
Production costs fell quickly, wages increased slowly and prices remained constant.
The US economy relied on the wealthy - their luxury spending and investment for stability. With high confidence in the US economy, the wealthy looked for investments with high returns so spent excessively on stock market shares, boosting the share prices high.
