DEBTS AND FLUCTUATION
THE ANALYSIS underlying the 1938 edition of Debts and Recovery was based on a mixture of the ideas of Ralph Hawtrey and Joseph Schumpeter, who offered the most advanced theories of money and business cycles of the time. For understanding debt problems, the most important idea in Hawtrey's monetary theory concerned the inherent instability of credit. Hawtrey taught that any disturbance to the economy tends to be magnified by the credit system. Economic upturns tend to turn into cumulative and even runaway booms as credit expansion begets further credit expansion, while economic downturns tend to turn into cumulative depressions as credit contraction begets further credit contraction. Hawtrey sought to understand the workings of the cumulative process in order to guide timely central bank intervention to prevent that process from developing an unstoppable force.
The most important idea in Schumpeter's theory was that industrial fluctuation should be understood as the process by which the economy adapts itself to technological change. In addition to the high-frequency inventory cycles (for which Hawtrey's theory had been designed), Schumpeter identified medium-term fluctuations (Juglar cycles of ten years) and longer-term fluctuations