Emil Lederer’s Theory of Economic Fluctuations and the Role of Financial Institutions

<title>Abstract</title> Emil Lederer was characterized as the “leading academic socialist of Germany in the 1920’s” by Joseph Schumpeter and was a highly respected economist of his time. However, most aspects of his work remain totally unexplored. This paper focuses on Emil Lederer’s theory of economic fluctuations defending the thesis that certain aspects of Lederer’s conceptualization of economic fluctuations underwent considerable modifications when his 1925 article <italic>Konjunktur und Krisen</italic> is compared with his 1938 book <italic>Technical Progress and Unemployment</italic>, a shift unacknowledged so far in the literature. In his first attempt to tackle the issue, in <italic>Konjunktur und Krisen</italic> (1925), Lederer had constructed an explanation consistent with the so-called “disproportionality theory” introduced by Tugan-Baranowsky (codified as “early Lederer”). However, Lederer’s conception of the business cycle during the 1930s and especially in his major work <italic>Technical Progress and Unemployment</italic> underwent considerable modifications. Lederer’s (1938) analysis is, apparently, very ‘Schumpeterian’ (codified as “late Lederer”). In this version of his theory, the cycle is explained by supply-side factors, and more specifically by technical change. Additionally, Lederer’s view on the role of financial institutions (credit and banks) with regards to business cycles is analysed. Lederer avoided attributing a causative role to monetary factors. The interrelation between ‘real’ factors and financial institutions constitutes an essential element in his analysis of the business cycle.