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IRVING FISHER, DEBT DEFLATION, AND CRISES

  • ROBERT J. SHILLER

Abstract

This article reconsiders, in the light of the current financial turmoil, Irving Fisher’s 1911 theory of financial crises and his 1933 debt-deflation theory of Great Depressions. Particular attention is given to the role of high debt ratios, high leverage ratios, and changes in the purchasing power of money in Fisher’s analysis, and to Fisher’s compensated dollar plan to stabilize the purchasing power of money. It is argued that indexing the unit of account would accomplish Fisher’s goal of stabilization without the practical difficulties of Fisher’s compensated dollar plan.

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Dimand, Robert, and Geanakoplos, John, eds. 2005. Celebrating Irving Fisher: The Legacy of a Great Economist. Hoboken, NJ: Wiley-Blackwell.
Fisher, Irving, with Brown, Harry G.. [1911] 1913. The Purchasing Power of Money. New York: The Macmillan Company.
Fisher, Irving. 1913. “A Compensated Dollar.” Quarterly Journal of Economics 27 (2): 213235.
Fisher, Irving. 1928. The Money Illusion. New York: Adelphi.
Fisher, Irving. 1933. “The Debt Deflation Theory of Great Depressions.” Econometrica 1, 4(October): 337357.
Kamstra, Mark, and Shiller, Robert. 2010. “Trills instead of T-Bills.” Economists Voice. http://www.bepress.com/ev/vol7/iss3/art5/.
Newcomb, Simon. 1879. “The Standard of Value.” North American Review: 223227.
Reinhart, Carmen, and Rogoff, Kenneth. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.
Shiller, Robert J. 1993. Macro Markets: Creating Institutions for Managing Society’s Largest Economic Risks. Oxford: Oxford University Press.
Shiller, Robert J. 2003. The New Financial Order. Princeton: Princeton University Press.
Shiller, Robert J. 2009. The Case for a Basket: A New Way of Showing the True Value of Money. London: The Policy Exchange. http://www.policyexchange.org.uk/publications/publication.cgi?id=119.

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IRVING FISHER, DEBT DEFLATION, AND CRISES

  • ROBERT J. SHILLER

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