In December 2005, President Bush had just recently nominated Ben Bernanke to succeed Alan Greenspan as Federal Reserve chairman. The economy appeared strong: growth was robust, unemployment was just 5% and housing prices were lofty. Few were predicting the current crisis the U.S. now faces. In a Dec. 7, 2005 article in the Journal, Greg Ip presented a look at how Mr. Bernanke’s research into the Great Depression might prepare him to face an economic crisis as Fed chairman. Here are some prescient excerpts:

paperThe Depression, [Mr. Bernanke] contends, has taught the importance of avoiding both deflation — that is, generally falling prices — and inflation. It has also shown the threat that falling asset prices — such as, potentially, in housing — and weakened banks can pose. Most important, it shows the damage the Fed can do when it follows wrong-headed ideas.

The economies of today and the 1930s could scarcely be more different. Between 1929 and 1933, U.S. economic output plunged almost 30%, the unemployment rate soared to nearly 25% and thousands of banks failed. Overall prices fell about 10% a year. As wages, prices and real-estate values spiraled down, millions of homeowners and businesses struggled to pay their debts.

Today, growth is strong, unemployment is just 5% and housing prices are lofty. The Fed is raising interest rates to prevent a rerun of the 1970s, when high oil prices and a loose monetary policy unleashed double-digit inflation.

But beneath the surface are trends that suggest the lessons of the Depression remain relevant to the Fed. Mr. Bernanke’s study of the era influences his belief that the Fed should not only aim for low inflation but publicly put a number on the inflation rate it wants to achieve. While the principal benefit of doing so would be to hold down inflation by stabilizing the public’s price expectations, Mr. Bernanke has argued that an even more important benefit would be to prevent the Fed from stumbling into deflation. Its inflation target would be a lower limit as well as a maximum.

Mr. Bernanke’s Depression research has emphasized how declining asset prices and weakened banks can choke off new lending and economic growth. Falling house prices, for instance, “would significantly disrupt the net worth of many borrowers,” notes Glenn Hubbard, a Columbia University economist who, as Mr. Bush’s Council of Economic Advisers chairman, helped persuade Mr. Bernanke to leave Princeton University to be a Fed governor in 2002. “Ben will look hard at [such] balance-sheet effects.” That means he might keep interest rates lower than others would in such circumstances.

Perhaps the most important lesson Mr. Bernanke draws from the 1930s is the importance of thinking creatively when faced with unusual economic challenges. While some have criticized him for saying in 2002 the Fed could print money to end deflation, the comments typify his willingness to question orthodoxy. Mr. Bernanke has written that President Franklin Roosevelt’s most important contribution to ending the Depression was “his willingness to be aggressive and to experiment.”

Milton Friedman and Anna Jacobson Schwartz upended that view in 1963. In “A Monetary History of the United States, 1867-1960,” they argued that the Depression was far from inevitable, but brought about by an “inept” Federal Reserve. First, they said, the Fed foolishly raised interest rates in 1928 to end speculation on Wall Street, causing a recession the next year that precipitated the crash. Then, it let thousands of banks fail and the money supply shrink. In part, it thought weak banks should be allowed to fail. It also feared that lower interest rates might lead foreigners to dump dollars, straining the currency’s link to gold.

Mr. Bernanke read the book as a graduate student at Massachusetts Institute of Technology in the 1970s. “I was hooked, and I have been a student of monetary economics and economic history ever since,” he recalled at a 2002 conference honoring Mr. Friedman’s 90th birthday. Mr. Bernanke, by then one of the Fed’s seven governors, told Mr. Friedman: “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”