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Insights on deflation theory

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  • Angel Asensio

Abstract

Irving Fisher offered a ‘tentative’ debt-deflation theory of great depressions rather than a fully consistent theory of his ‘creed’: “I say "creed" because, for brevity, it is purposely expressed dogmatically and without proof. (…) it is quite tentative” (Fisher 1933, p 337). The paper argues that prominent authors who strived to explain his ideas within the Walrasian apparatus could not deliver a consistent theory of deflation with protracted depression. This is basically because destabilizing market forces cannot dominate in that conceptual framework. By contrast, owing to the way competitive forces operate under fundamental uncertainty, Keynes’s General Theory escapes the contradiction. JEL Classification: B26; E3; E4.

Suggested Citation

  • Angel Asensio, 2018. "Insights on deflation theory," Brazilian Journal of Political Economy, Center of Political Economy, vol. 38(2), pages 338-357.
    • Handle: RePEc:ekm:repojs:v:38:y:2018:i:2:p:338-357:id:72
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    More about this item

    Keywords

    Debt-deflation; depression; instability; uncertainty;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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