The Debt-Deflation Theory of Great Depressions.

[Menasha, Wisconsin], The Econometric Society, 1933. Royal8vo. In a contemporary black half calf binding with gilt lettering to spine. In "Econometrica", Vol. 1, 1933. Entire volume offered. Light wear to extremities and small stamp to title-page. A fine copy. Pp. 339-357. [Entire volume: (4), 448 pp.].

First edition of Fisher's seminal work in which he introduced the concept of 'Debt deflation': a theory of economic cycles that holds that recessions and depressions are due to the overall level of debt shrinking (deflating): the credit cycle is the cause of the economic cycle.

The theory was developed by Irving Fisher following the Wall Street Crash of 1929 and the ensuing Great Depression. The debt deflation theory was familiar to John Maynard Keynes prior to Fisher's discussion of it, but he found it lacking in comparison to what would become his theory of liquidity preference. The theory, however, has enjoyed a resurgence of interest since the 1980s, both in mainstream economics and in the heterodox school of post-Keynesian economics, and has subsequently been developed by such post-Keynesian economists as Hyman Minsky and Steve Keen and by the mainstream economist Ben Bernanke.

"During the Great Depression, observing the catastrophes of the world around him, which he shared personally, Fisher came to quite a different theory of the business cycle from the simple monetarist version he had espoused earlier. This was his 'Debt-deflation theory of depression', summarized in the first volume of Econometrica, the organ of the international society he helped to found. The essential features are that debt-financed Schumpeterian innovation fuel a boom, followed by a recession between excessive real debt burdens and deflation. Note the contrast to the Pigou real balance effect, according to which prices declines are the benign mechanism that restores full-employment equilibrium. The realism is all on Fisher's side. This theory of Fisher's has room for the monetary and credit cycles of which he earlier complained, and for the perversely pro-cyclical real interest rate movements mentioned above."

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