Underconsumption theories and

Keynesian economics.
Interpretations of the Great Depression
Elisabeth Allgoewer

May 2002 Discussion paper no. 2002-14

Department of Economics University of St. Gallen

Editor: Prof. Jörg Baumberger
University of St. Gallen
Department of Economics
Bodanstr. 1
CH-9000 St. Gallen
Phone ++41 71 224 22 41
Fax ++41 71 224 28 85
Email joerg.baumberger@unisg.ch
Publisher: Forschungsgemeinschaft für Nationalökonomie
an der Universität St. Gallen
Dufourstrasse 48
CH-9000 St. Gallen
Phone ++41 71 224 23 00
Fax ++41 71 224 26 46
Electronic Publication: www.fgn.unisg.ch/public/public.htm
 Underconsumption theories and Keynesian economics.

Interpretations of the Great Depression1

Elisabeth Allgoewer

Author’s address: Dr. Elisabeth Allgoewer

FGN-HSG
Dufourstr. 48
9000 St. Gallen
Tel. ++41 71 224 23 00
Fax ++41 71 224 26 46
Email elisabeth.allgoewer@unisg.ch

1
I would like to thank Mauro Boianovsky and Claudio Sardoni for helpful comments on earlier versions of this
paper. All remaining errors are mine.
Abstract

Underconsumption theories played an important part in the economic policy debates during
the Great Depression of the 1930s. The commonsense appeal of the arguments and the
clear cut policy advice secured their proponents’ popular support. Here, the contributions of
John A. Hobson, Emil Lederer, Waddill Catchings and William Foster are analyzed. The
background to their thinking in terms of the economic policy debates in the respective
countries is discussed and compared. Switzerland is an interesting case in this context since
there underconsumption arguments were the only arguments used to challenge the
orthodoxy of balanced budgets with the demand for active government policies. In evaluating
the contributions discussed here with regard to the innovations of Keynes’s General Theory
on the one hand, the tradition of classical political economy on the other, it is argued that
although underconsumptionists share certain concerns with Keynes’s analysis, central
theoretical notions are carried over from classical economics.

Keywords

Pre-Keynesian business cycle theory, classical economic thinking, Keynesian economics,

explanations for the Great Depression, cycles and growth.

JEL Classification

B2, B3, E3, N1.

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