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Irving Fisher's debt deflation analysis: From the Purchasing Power of Money (1911) to the Debt-deflation Theory of the Great Depression (1933)

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  • Michael Assous

Abstract

In 1933, Irving Fisher proposed an explanation for the Great Depression based on the distinction between the price level and price change effect of deflation in a context of over-indebtedness. This paper compares the debt-deflation theory of Fisher (1933) with the dynamic depression process he had expounded almost 20 years earlier in the Purchasing Power of Money (1911). The role played by both price level and price change effects in the analyses of Fisher (1933, 1911) are clarified in the context of the disequilibrium model of Tobin (1975). More precisely, we show that the stationary equilibrium is assumed to be locally unstable according to Fisher's 1911 insights and globally unstable according to his 1933 analysis.

Suggested Citation

  • Michael Assous, 2013. "Irving Fisher's debt deflation analysis: From the Purchasing Power of Money (1911) to the Debt-deflation Theory of the Great Depression (1933)," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 20(2), pages 305-322, April.
    • Handle: RePEc:taf:eujhet:v:20:y:2013:i:2:p:305-322
    DOI: 10.1080/09672567.2012.762936
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    References listed on IDEAS

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    1. Thomas I. Palley, 2008. "Keynesian Models of Deflation and Depression Revisited: Inside Debt and Price Flexibility," Working Papers wp169, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Thomas I Palley, 2011. "Inside Debt and the Stability of Inflation," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 37(4), pages 488-507.
    3. King, Mervyn, 1994. "Debt deflation: Theory and evidence," European Economic Review, Elsevier, vol. 38(3-4), pages 419-445, April.
    4. James Tobin, 1993. "Price Flexibility and Output Stability: An Old Keynesian View," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 45-65, Winter.
    5. repec:bla:scandj:v:80:y:1978:i:3:p:265-82 is not listed on IDEAS
    6. Christian Groth, 1993. "Some unfamiliar dynamics of a familiar macro model a note," Journal of Economics, Springer, vol. 58(3), pages 293-305, October.
    7. Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
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    Cited by:

    1. Guillermo Calvo, 2015. "The Liquidity Approach to Bubbles, Crises, Jobless Recoveries, and Involuntary Unemployment," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo J. Caballero & Klaus Schmidt-Hebbel (ed.),Economic Policies in Emerging-Market Economies Festschrift in Honor of Vittorio Corbo, edition 1, volume 21, chapter 6, pages 079-108, Central Bank of Chile.
    2. Assous, Michaël, 2021. "Review of “Irving Fisher” by Robert W. Dimand," OSF Preprints m5fbw, Center for Open Science.

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