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Banks, debt and deflation in the Great Depression

In: Banks and Finance in Modern Macroeconomics

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Abstract

The Great Depression of the 1930s was a major concern of many economists. This chapter examines Fisher’s and Keynes’s viewpoints on deflation and financial crises, a topic that returned to interest several times in the aftermath of the late 200s crisis. Keynes devoted attention to deflation in relation to Britain’s return to the gold standard in the 1920s and during the international financial crises after the 1929 crash. Fisher’s ideas were affected by the US financial crisis in 1929 and the early 1930s. From the optimism of the ‘roaring twenties’, he turned to explain the major depressions in his debt-deflation theory. Both scholars analysed the real effects of bringing the financial structure to near collapse. Keynes never embodied his views on banks and financial crises into his major works, but his aversion to the costs of deflation explains his lack of faith in price adjustments to restore full employment.

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  • ., 2019. "Banks, debt and deflation in the Great Depression," Chapters, in: Banks and Finance in Modern Macroeconomics, chapter 4, pages 68-89, Edward Elgar Publishing.
  • Handle: RePEc:elg:eechap:17355_4
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    Economics and Finance;

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