NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Consumption and Investment Booms in the Twenties and Their Collapse in 1930

Steven Gjerstad, Vernon L. Smith


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Housing and Mortgage Markets in Historical Perspective, Eugene N. White, Kenneth Snowden, and Price Fishback, editors
Conference held September 23-24, 2011
Forthcoming from University of Chicago Press

Similarities between the financial crisis in September 2008 and the collapse of the financial system during the depression have been widely noted. Yet the comparability of the origins and transmission of the crises have been neglected. The recent downturn, which originated with a pronounced housing boom and collapse, led to severe household balance sheet problems that were transmitted to lenders and mortgage security investors. Damage to household balance sheets weakened household demand – especially for housing and durable goods – which adversely affected employment, production, and non-residential fixed investment. This pattern, however, is not recognized in the dominant view as a possible cause of the depression. Contrary to prevailing views of the origins of the Great Depression, this paper argues that changes in levels of mortgage finance, residential construction, and the broader economy preceding and during the initial phases of the Great Depression shared many features with the recent Great Recession.

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This paper was revised on September 3, 2013

Acknowledgments

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