An Examination of Critical Theories of Finance from Adam Smith to the Present Day
Chapter 6: Irving Fisher and Debt Deflation
The views of Veblen’s near-contemporary Irving Fisher on finance have tended to be obscured by the blow that his reputation suffered after his pronouncement, on the eve of the 1929 Crash, that ‘stock prices have reached what looks like a permanently high plateau’.1 Shortly after the Crash, he published a book entitled The Stock Market Crash – And After, in which he argued that the stock market boom that preceded the Crash was justified by structural improvements that had taken place in the US economy during the 1920s. Mergers and acquisitions, he felt, allowed economies of scale to take place, along with scientific breakthroughs and innovations. The ‘scientific management’ movement of Taylorism, improved layout of manufacturing plants, and a greater cooperation of trades unions in industrial management were also destined to increase the productivity of business, and the earnings of stock-holders.2 However, Fisher was a much more thoughtful commentator on economic developments than Galbraith’s selective quotations, and Fisher’s initial response to the Crash, would suggest. When he had reconciled himself to the loss of his sister’s wealth under his management in the Crash, Fisher reflected on a possible connection between the financial inflation that had caused him this loss, and depression that followed. In 1931, in the course of his lectures at Yale, he first enunciated his theory of debt deflation. He wrote up his reflections and analysis on business in his book Booms and Depressions.3 By way of highlighting his distinctive views on the subject, he distilled his main conclusions...
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