Tyler points to Malthus as a much underappreciated economist. John Cassidy points to Pigou. For my money, Irving Fisher dominates. Other people (e.g. London Banker and Yves Smith) have also extolled Irving Fisher, but I would still rank Fisher as highly underappreciated relative to insight and clarity of thought.
Here from his classic, The Debt-Deflation Theory of Great Depressions, are some choice insights.
Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to (7) Hoarding and slowing down still more the velocity of circulation.With perhaps the qualification that even real rates of interest may fall is this not a brilliant summary of current events?
The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.
Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way.
Wednesday, 2 December 2009
Tabarrok on Irving Fisher
Earlier I noted that John Cassidy was arguing for the relevance of the ideas of Arthur Cecil Pigou to the recent financial crisis. Now Alex Tabarrok, over at Marginal Revolution, is arguing for another "underappreciated economist", Irving Fisher, and his relevance to the current crisis. Tabarrok writes,