John Stuart Mill on economic fluctuations and commercial crises

Abstract

Many early 19th century economic thinkers have provided ideas to explain the causes of commercial crises, as against the Classical belief on the impossibility of a general disequilibrium between demand and supply. J.S. Mill contributed to this debate suggesting an analysis of money and credit as generators of economic fluctuations and crises. Mill apprehended the significance of the function of money as a store of value and explained cyclical fluctuations based on three interrelated causes: the role of money as credit, the propensity of moneylenders to overexpand their credit and the effect of the general tendency of profits to fall.