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Irving Fisher's Debt-Deflation Theory: Its Relevance to Current Conditions

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  • Wolfson, Martin H

Abstract

The essence of Irving Fisher's debt-deflation theory was an interactive process whereby falling commodity prices increased the debt burden of borrowers. Despite the absence of falling prices today, this paper argues that a modified debt-deflation process is still possible. As the 1987 stock market crash demonstrates, the modern debt-deflation process encompasses falling asset prices, debt repayment difficulties, a reluctance to lend, a financial crisis, the impact on the banks, and the interdependency of the financial system. Recent debt-deflations have been aborted by lender-of-last-resort intervention and government support of the financial system. (c) 1996 Academic Press Limited Copyright 1996 by Oxford University Press.

Suggested Citation

  • Wolfson, Martin H, 1996. "Irving Fisher's Debt-Deflation Theory: Its Relevance to Current Conditions," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 20(3), pages 315-333, May.
    • Handle: RePEc:oup:cambje:v:20:y:1996:i:3:p:315-33
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    Cited by:

    1. Guizani, Brahim, 2010. "Regulation Policy And Credit Crunch: Evidence From Japan," MPRA Paper 46827, University Library of Munich, Germany, revised 08 May 2013.
    2. Joerg Bibow, 2020. " The General Theory as "Depression Economics"? Financial Instability and Crises in Keynes's Monetary Thought," Economics Working Paper Archive wp_974, Levy Economics Institute.
    3. Edouard Challe, 2000. "La "debt-deflation" selon Irving Fisher, Histoire et actualité d'une théorie de la crise financière," Cahiers d'Économie Politique, Programme National Persée, vol. 36(1), pages 7-38.
    4. Antonio Sanabria Martín & Bibiana Medialdea García, 2016. "Lending Calling. Recession by Over-Indebtedness: Description and Specific Features of the Spanish Case," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(2), pages 195-210, April.
    5. Katalin Botos, 2022. "What Can Posterity Learn from Irving Fisher?," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(2), pages 175-187.
    6. Lino Sau, 2005. "La deflazione da debiti di Irving Fisher nell'era della globalizzazione," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 443-458.
    7. Lino Sau, 2015. "Debt deflation worries: a restatement," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 279-294, July.
    8. Greg Hannsgen & Tai Young-Taft, 2015. "Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility," Economics Working Paper Archive wp_839, Levy Economics Institute.
    9. Jaakko Kiander, 2003. "Macroeconomic Policy and Performance in the Nordic EU Countries in the 1990s," Eastward Enlargement of the Euro-zone Working Papers wp17b, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 May 2003.
    10. Martin H. Wolfson, 2000. "Neoliberalism and International Financial Instability," Review of Radical Political Economics, Union for Radical Political Economics, vol. 32(3), pages 369-378, September.
    11. Argandoña, Antonio, 2013. "Irving Fisher: un gran economista," IESE Research Papers D/1082, IESE Business School.
    12. Lawson, Cornelia & Soós,Sándor, 2014. "A Thematic Mobility Measure for Econometric Analysis," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201408, University of Turin.
    13. James Ang & Carol Boyer, 2009. "Has the 1987 crash changed the psyche of the stock market?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(2), pages 138-154, May.
    14. Robert W. Dimand, 2005. "Fisher, Keynes, and the Corridor of Stability," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(1), pages 185-199, January.
    15. Lars Jonung & Jaakko Kiander & Pentti Vartia, 2008. "The great financial crisis in Finland and Sweden - The dynamics of boom, bust and recovery, 1985-2000," European Economy - Economic Papers 2008 - 2015 350, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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