Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Credit, Debt-Deflation, and the Great Depression Revisited
Journal of Economic Perspectives
(pp. 149–72)
(Complimentary)
Abstract
This article revisits the thesis of Bernanke (1983) that the disruption of private credit markets induced by deflation and falling nominal incomes helps to explain the depth and persistence of the Great Depression. This new look is motivated by economists' increased attention to the role of financial frictions in economic fluctuations as well as recent empirical research on the Depression and other episodes of disrupted credit. Overall, considerable evidence now exists that the financial distress of both borrowers (farmers, households, and businesses) and lenders (nonbanks as well as banks) significantly depressed credit flows, spending, and economic activity in the 1930s. Indeed, judging by their policy choices and the accompanying rationales, political leaders of the period evidently viewed the normalization of credit flows as a top priority in their fight against the Depression.Citation
Bernanke, Ben S. 2025. "Credit, Debt-Deflation, and the Great Depression Revisited." Journal of Economic Perspectives 39 (4): 149–72. DOI: 10.1257/jep.20251455Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- N12 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
- N22 Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-