There´s really not much that´s ‘new’ under the sun

Some quotes from a late 1933 paper – The debt deflation theory of the Great Depression – by Irving Fisher:

37. Unless some counteracting cause comes along to prevent the fall in the price level, such a depression as that of 1929-33 (namely when the more the debtors pay the more they owe) tends to continue, going deeper, in a vicious spiral, for many years. There is then no tendency of the boat to stop tipping until it has capsized.

38. On the other hand, if the foregoing analysis is correct, it is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted by existing debtors and assumed by existing creditors, and then maintaining that level unchanged.

That the price level is controllable is not only claimed by monetary theorists but has recently been evidenced by two great events: (1) Sweden has now for nearly two years maintained a stable price level, practically always within 2 per cent of the chosen par and usually within 1 per cent. Note Chart IV. (2) The fact that immediate reversal of deflation is easily achieved by the use, or even the prospect of use, of appropriate instrumentalities has just been demonstrated by President Roosevelt. Note Charts VII and VIII. (“Chuck Norris effect”)

40. If all this is true, it would be as silly and immoral to “let nature take her course” as for a physician to neglect a case of pneumonia. It would also be a libel on economic science, which has its therapeutics as truly as medical science. (Do I read an anti-Austrian manifesto?)

41. If reflation can now so easily and quickly reverse the deadly down-swing of deflation after nearly four years, when it was gathering increased momentum, it would have been still easier, and at any time, to have stopped it earlier. In fact, under President Hoover, recovery was apparently well started by the Federal Reserve open-market purchases, which revived prices and business from May to September 1932. The efforts were not kept up and recovery was stopped by various circumstances, including the political “campaign of fear.” (nowadays, ‘dysfunctional’ politics and the presence, in central banks objective functions, of a negative term to reflect their ‘dislike’ for ‘unconventional’ policies)

It would have been still easier to have prevented the depression almost altogether. In fact, in my opinion, this would have been done had Governor Strong of the Federal Reserve Bank of New York lived, or had his policies been embraced by other banks and the Federal Reserve Board and pursued consistently after his death. (not ‘QE on, QE off’).

In that case, there would have been nothing worse than the first crash. We would have had the debt disease, but not the dollar disease—the bad cold but not the pneumonia.

Now, substitute ‘reflate’ by ‘increase spending’ and ‘price level control’ by NGDP-LT and voila, Fischer was a ‘Market Monetarist’.

HT Suvy

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