Bankruptcy, Debt, and the Macroeconomy, 1919-1946

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Emerald Publishing Limited


Between 1919 and 1946 bankruptcy rates in the United States traced out an inverted U-shaped curve, rising during the 1920s as debt levels increased, remaining high in the 1930s as income levels fell, and then plummeting during the Second World War in the face of both rising income and falling private debt levels. This paper explores these relationships econometrically, both at the aggregate level and at the level of a number of individual states. It also discusses the historical evolution, motivation, and macroeconomic consequences of bankruptcy law, concluding that the value of analyses such as those of Joseph Schumpeter and Secretary of the Treasury Andrew Mellon have been too quickly dismissed, at least in their entirety, by scholars such as Ben Bernanke.