The Journal of Economic History


The Household Balance Sheet and the Great Depression

Frederic S. Mishkin


This paper focuses on changes in household balance sheets during the Great Depression as transmission mechanisms which were important in the decline of aggregate demand. Theories of consumer expenditure postulate a link between balance-sheet movements and aggregate demand, and applications of these theories indicate that balance-sheet effects can help explain the severity of this economic contraction. In analyzing the business cycle movements of this period, this paper's approach is Keynesian in character in that it emphasizes demand shifts in particular sectors of the economy; yet it has much in common with the monetarist approach in that it views events in financial markets as critical to our understanding of the Great Depression.