A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. The large and growing dissimilarity of wealth between the well-to-do and the middle-income citizens made the U.S. economy unstable. For an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income, it is not granted that demand will always equal supply. In just three years a whole decade of economic growth was wiped out. The first three waves of bank failures began in the fall of 1930. While bank failures were common in the 1920s, many more banks failed in the 1930s, and, unlike in the 1920s, there was a large decline in the money supply. Made fearful by the huge number of banks that failed, surviving banks cut back on their lending, and the public reduced their bank balances. Between 1929 and 1933, the nation's money supply declined by over 25 percent.

             The federal government also contributed to the gap between the rich and middle-class. The Roaring Twenties was an era dominated by Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their conservative economic philosophy of laissez-faire ("leave it alone"), markets were allowed to operate without government interference. Taxes and regulation were slashed dramatically, monopolies were allowed to form and inequality of wealth and income reached record levels. The country was on the conservative's preferred gold standard, and the Federal Reserve was not allowed to change the money supply. The fact that the Great Depression began in 1929 on the Republicans' watch was and still is a great embarrassment to conservative economists. Many try to lay the blame of the worsening of the Depression on Hoover, for supposedly betraying the laissez-faire philosophy.