Booms and Depressions

"This is a very good account of how the Boom occurred and how the Great Depression followed. I think it’s a historical document, so I list it as one of my favourite books. It was written after the Depression, in 1932, and the author, Irving Fisher himself, essentially went bust. At that time I think he was a Professor at Princeton. He was very optimistic about America and about the economy, and so he had long positions in equities. But during the crash he suffered badly: he had mortgages on his house and so he had a financial problem. But because he was such a well-known economist, I think, Princeton bailed him out. Fisher developed this debt-deflation theory. He wasn’t a stock market timer, but more among the best economists of the 20th century. I would rank him along with Schumpeter as one of the great economists. He was to a large extent a monetarist, but he realised that expected money supply growth and debt growth would lead to problems. He didn’t realise this while it was happening, but at least afterwards he realised it. “I would rank Irving Fisher along with Schumpeter as one of the great economists.” In 1930, before the Depression —but just after the crash of 1929 had happened— he wrote The Stock Market Crash And Afterwards. At that stage he hadn’t realised it fully. When he wrote that book, the stock market was recovering and he explained that basically the valuations were very low and that the outlook was still favourable. It’s only in 1932 that he realised that there had been a debt overhang. But he describes very well in both books the excesses that had happened before the crash. Yes, exactly. Fisher describes how investment banks began to sell securities just to make a profit out of selling them, and so forth, and how the public was borrowing money on instalment credit. The whole debt bubble was very well explained in Booms and Depressions. Well, excessive speculation, excessive money creation as a result of artificially low interest rates, and also the globalisation that took place at that time, which essentially then led to one country after another falling down during the Depression. Fisher shows how trade contracted at the time. Booms and Depressions is a historical document that mirrors very well what happens during financial bubbles."