The Debt-Deflation Theory of Great Depressions

Robert Dimand

Chapter Chapter 8 in Irving Fisher, 2019, pp 175-200 from Palgrave Macmillan

Abstract: Abstract The Debt-Deflation Theory of Great Depressions: During the Great Depression, Fisher provided the Hoover and Roosevelt Administrations with much advice (largely unsolicited) about the need for what Fisher termed reflation. Fisher’s emphasis on monetary policy came to be overshadowed by Keynes’s theory of employment and the Kahn-Keynes multiplier analysis of the effect of fiscal policy. Fisher’s “Debt-Depression Theory of Great Depressions” (Econometrica 1: 337–357, 1933), explaining what had gone wrong, attracted little attention at the time, given the wreckage of Fisher’s reputation, but from 1975 onwards influenced the views of Hyman Minsky, James Tobin, Ben Bernanke and Mervyn King on how to avoid another depression—an influence that had practical relevance for the response of Bernanke and King to the possibility of the collapse of financial intermediation in 2007 and 2008.

Date: 2019
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DOI: 10.1007/978-3-030-05177-8_8

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