The Great Depression in Irving Fisher's Thought

This paper offers a critical re-examination of Irving Fisher’s views on the origin of the Great Depression, his “debt-deflation theory” and the policy measures he advocated. On the eve of the stock market crash in October 1929, Fisher predicted that the share prices were not overvalued and that their increase was due to new profit opportunities created by technological innovation and sharp rises in productivity. As the Depression worsened, however, he became convinced that new theoretical explanations were needed and presented a new model (the debt-deflation theory) based on the interaction of real and monetary aspects. In 1932 he also became an active supporter of a “stamped money plan” aimed at counteracting widespread hoarding. During the New Deal he supported expansionary monetary measures and promoted a revision of the banking system aimed at abolishing fractional reserves (“100% money”). In the meantime he opposed Roosevelt’s labour and industrial policies and, more generally, any intervention by the government on economic activity with the exception of the control on money supply.