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Why did a shrinking money supply discourage borrowing and investment during the Great Depression?

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A long line of unemployed men in coats and hats stands outside a soup kitchen in Chicago, with a storefront sign reading Free Soup, Coffee and Doughnuts for the Unemployed. — Great Depression Unemployed men standing in line outside a soup kitchen, Chicago.

During the Great Depression, the shrinking money supply discouraged borrowing and investment primarily by fostering widespread expectations of deflation.12

As the money supply contracted, consumers and businesspeople anticipated that future wages and profits would be lower than current levels. Consequently, even when nominal interest rates were low, individuals and firms were hesitant to take on debt, fearing that their future income would be insufficient to cover their loan payments.12

This reluctance to borrow led to significant reductions in consumer spending and business investment, which further depressed economic output. This situation was compounded by the failure of numerous banks, which disrupted the availability of credit and reduced the overall funds accessible to finance investment. Additionally, the Federal Reserve exacerbated these conditions by raising interest rates and deliberately reducing the money supply to protect the gold standard, which intensified the contractionary pressure on the economy.12