Irving Fisher on easy money

Easy money is the great cause of overborrowing.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher on the causes of over-indebtedness

44. The over-indebtedness hitherto presupposed must have had its starters. It may be started by many causes, of which the most common appears to be new opportunities to invest at a big prospective profit, as compared with ordinary profits and interest, such as through new inventions, new industries, development of new resources, opening of new lands or new markets. Easy money is the great cause of overborrowing. When an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with borrowed money. This was a prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements created wonderful investment opportunities, and so caused big debts. Other causes were the left-over war debts, domestic and foreign, public and private, the reconstruction loans to foreigners, and the low interest policy adopted to help England get back on the gold standard in 1925.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher anticipates the modern day Fed

42. If the debt-deflation theory of great depressions is essentially correct, the question of controlling the price level assumes a new importance; and those in the drivers' seats—the Federal Reserve Board and the Secretary of the Treasury, or, let us hope, a special stabilization commission—will in future be held to a new accountability.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher: laissez-faire approach to Depression would have led to a political revolution

39. If even then our rulers should still have insisted on "leaving recovery to nature" and should still have refused to inflate in any way, should vainly have tried to balance the budget and discharge more government employees, to raise taxes, to float, or try to float, more loans, they would soon have ceased to be our rulers. For we would have insolvency of our national government itself, and probably some form of political revolution without waiting for the next legal election.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Iriving Fisher: FDR's reflation efforts not enough to reach bottom (1933)

39. Those who imagine that Roosevelt's avowed reflation is not the cause of our recovery but that we had "reached the bottom anyway" are very much mistaken. At any rate, they have given no evidence, so far as I have seen, that we had reached the bottom. And if they are right, my analysis must be woefully wrong. According to all the evidence, under that analysis, debt and deflation, which had wrought havoc up to March 4, 1933, were then stronger than ever and, if let alone, would have wreaked greater wreckage than ever, after March 4.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher on reflation as preventing depression

38. [I]t is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted by existing debtors and assumed by existing creditors, and then maintaining that level unchanged.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher on alternative explanations of the boom-bust cycle

15. While any deviation from equilibrium of any economic variable theoretically may, and doubtless in practice does, set up some sort of oscillations, the important question is: Which of them have been sufficiently great disturbers to afford any substantial explanation of the great booms and depressions of history?

16. I am not sufficiently familiar with the long detailed history of these disturbances, nor with the colossal literature concerning their alleged explanations, to have reached any definitive conclusions as to the relative importance of all the influences at work. I am eager to learn from others.

17. According to my present opinion, which is purely tentative, there is some grain of truth in most of the alleged explanations commonly offered, but this grain is often small. Any of them may suffice to explain small disturbances, but all of them put together have probably been inadequate to explain big disturbances.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher on the business cycle

6. There are two sorts of cyclical tendencies. One is "forced" or imposed on the economic mechanism from outside. Such is the yearly rhythm; also the daily rhythm. Both the yearly and the daily rhythm are imposed on us by astronomical forces from outside the economic organization; and there may be others such as from sun spots or transits of Venus. Other examples of "forced" cycles are the monthly and weekly rhythms imposed on us by custom and religion. The second sort of cyclical tendency is the "free" cycle, not forced from outside, but self-generating, operating analogously to a pendulum or wave motion.

7. It is the "free" type of cycle which is apparently uppermost in the minds of most people when they talk of "the" business cycle.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher on main causes of boom and bust: over-indebtedness and deflation

19. I venture the opinion, subject to future evidence, that, in the great booms and depressions, each of the above-named factors has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after; also that where any of the other factors do become conspicuous, they are often merely effects or symptoms of these two. In short, the big bad actors are debt disturbances and price level disturbances.

While quite ready to change my opinion, I have, at present, a strong conviction that these two economic maladies, the debt disease and the price-level disease (or dollar disease), are, in the great booms and depressions, more important causes than all others put together.

Irving Fisher on the liquidation cure for busts

40. [I]t would be as silly and immoral to "let nature take her course" as for a physician to neglect a case of pneumonia. It would also be a libel on economic science, which has its therapeutics as truly as medical science.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Irving Fisher on debt, deflation and the business cycle

29. When over-indebtedness stands alone, that is, does not lead to a fall of prices, in other words, when its tendency to do so is counteracted by inflationary forces (whether by accident or design), the resulting "cycle" will be far milder and far more regular.

30. Likewise, when a deflation occurs from other than debt causes and without any great volume of debt, the resulting evils are much less. It is the combination of both—the debt disease coming first, then precipitating the dollar disease—which works the greatest havoc.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933