Irving Fisher's Theory: Debt-Deflation in Great Depressions, Slide di Mercato Finanziario

Scarica Irving Fisher's Theory: Debt-Deflation in Great Depressions e più Slide in PDF di Mercato Finanziario solo su Docsity! THE DEBT-DEFLATION THEORY OF GREAT DEPRESSIONS BY IRVING FISHER CYCLE THEORY IN GENERAL 15. “While any deviation from equilibrium of any economic variable theoretically may, and doubtless in practice does, set up some sort of oscillations, the important question is: Which of them have been sufficiently great disturbers to afford any substantial explanation of the great booms and depressions of history? “ CYCLE THEORY IN GENERAL 20. “Some of the other and usually minor factors often derive some importance when combined with one or both of the two dominant factors. Thus over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money. That is, over-indebtedness may lend importance to over-investment or to over-speculation. The same is true as to over-confidence. I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt. Another example is the mal-adjustment between agricultural and industrial prices, which can be shown to be a result of a change in the general price level”. CYCLE THEORY IN GENERAL 21. Disturbances in these two factors—debt and the purchasing power of the monetary unit— will set up serious disturbances in all, or nearly all, other economic variables. On the other hand, if debt and deflation are absent, other disturbances are powerless to bring on crises comparable in severity to those of 1837,1873, or 1929-33. «The roles of debt and deflation» 24. Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress setting and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a " capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor…….