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Classical deflation theory

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  • Thomas M. Humphrey

Abstract

Classical economists David Hume, Pehr Niclas Christiernin, Henry Thornton, David Ricardo, Thomas Attwood, and Robert Torrens looked beyond the redistributive (creditor-debtor) effects of deflationary monetary contraction to its adverse effects on output and employment. They attributed these effects to price-wage stickiness; to rises in real debt, tax, and cost burdens; to cash hoarding in anticipation of future price falls; and to other determinants. Addressing deflation associated with post-war resumption of gold convertibility at the old mint par, they advocated policies ranging from gradualism, to devaluation, and even to outright abandonment of the gold standard in order to avoid or mitigate deflation?s harm.

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  • Thomas M. Humphrey, 2003. "Classical deflation theory," Working Paper 03-13, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:03-13
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    References listed on IDEAS

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    1. Cesarano, Filippo, 1983. "The Rational Expectations Hypothesis in Retrospect," American Economic Review, American Economic Association, vol. 73(1), pages 198-203, March.
    2. Cesarano, Filippo, 1998. "Hume's specie-flow mechanism and classical monetary theory: An alternative interpretation," Journal of International Economics, Elsevier, vol. 45(1), pages 173-186, June.
    3. Thomas M. Humphrey, 1982. "Of Hume, Thornton, the quantity theory, and the Phillips curve," Economic Review, Federal Reserve Bank of Richmond, vol. 68(Nov), pages 13-18.
    4. Hicks, J. R., 1979. "Critical Essays in Monetary Theory," OUP Catalogue, Oxford University Press, number 9780198284239.
    5. Laidler,David, 1999. "Fabricating the Keynesian Revolution," Cambridge Books, Cambridge University Press, number 9780521641739.
    6. David Laidler, 2000. "Highlights of the Bullionist Controversy," University of Western Ontario, Departmental Research Report Series 20002, University of Western Ontario, Department of Economics.
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    Cited by:

    1. Goetz von Peter, 2005. "Debt-Deflation: Concepts, and a Stylised Model," Macroeconomics 0505001, University Library of Munich, Germany.

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    Keywords

    Monetary theory; Employment; Labor productivity;
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