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Debt, Corporate

In 1933, American economist Irving Fisher offered a sobering proposition that excessive use of debt in the economy would exacerbate the destabilizing effects of overinvestment and overspeculation, leading to distress selling, falling asset prices, rising real interest rates, declining net worth, rising bankruptcy, bank runs, curtailment of credit, and growing distrust and hoarding. Our understanding of the costs and benefits of debt and its impact on creating wealth in the economy has since been markedly revised. Fundamentally, we know that corporations have long served as a major form for organizing economic activity. Such “survival value” must reflect benefits from the organizational and management structure designed to harness both real and financial resources. The work by Ronald Coase in 1937 and its further development by Oliver ...

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