Classical Deflation Theory
22 Pages Posted: 5 Dec 2012
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Classical Deflation Theory
Date Written: 2004
Abstract
Classical economists David Hume, Pehr Niclas Christiernin, Henry Thornton, David Ricardo, Thomas Attwood, and Robert Torrens looked beyond the redistributive (creditor-debtor) effects of deflationary monetary contraction to its adverse effects on output and employment. They attributed these effects to price-wage stickiness; to rises in real debt, tax, and cost burdens; to cash hoarding in anticipation of future price falls; and to other determinants. Addressing deflation associated with post-war resumption of gold convertibility at the old mint par, they advocated policies ranging from gradualism to devaluation and even to outright abandonment of the gold standard in order to avoid or mitigate deflation's harm.
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