Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression

56 Pages Posted: 19 Jun 2004 Last revised: 20 Nov 2022

See all articles by Ben S. Bernanke

Ben S. Bernanke

Board of Governors of the Federal Reserve System

Date Written: 1983

Abstract

This paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period. Our approach is complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures; we focus on non-monetary (primarily credit-related) aspects of the financial sector--output link and consider the problems of debtors as well as those of the banking system. We argue that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand. Evidence suggests that effects of this type can help explain the unusual length and depth of the Great Depression.

Suggested Citation

Bernanke, Ben S., Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression (1983). NBER Working Paper No. w1054, Available at SSRN: https://ssrn.com/abstract=262088

Ben S. Bernanke (Contact Author)

Board of Governors of the Federal Reserve System

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