<P> Fisher's debt - deflation theory initially lacked mainstream influence because of the counter-argument that debt - deflation represented no more than a redistribution from one group (debtors) to another (creditors). Pure re-distributions should have no significant macroeconomic effects . </P> <P> Building on both the monetary hypothesis of Milton Friedman and Anna Schwartz as well as the debt deflation hypothesis of Irving Fisher, Ben Bernanke developed an alternative way in which the financial crisis affected output . He builds on Fisher's argument that dramatic declines in the price level and nominal incomes lead to increasing real debt burdens which in turn leads to debtor insolvency and consequently leads to lowered aggregate demand, a further decline in the price level then results in a debt deflationary spiral . According to Bernanke, a small decline in the price level simply reallocates wealth from debtors to creditors without doing damage to the economy . But when the deflation is severe falling asset prices along with debtor bankruptcies lead to a decline in the nominal value of assets on bank balance sheets . Banks will react by tightening their credit conditions, that in turn leads to a credit crunch which does serious harm to the economy . A credit crunch lowers investment and consumption and results in declining aggregate demand which additionally contributes to the deflationary spiral . </P> <P> Since economic mainstream turned to the new neoclassical synthesis, expectations are a central element of macroeconomic models . According to Peter Temin, Barry Wigmore, Gauti B. Eggertsson and Christina Romer, the key to recovery and to ending the Great Depression was brought about by a successful management of public expectations . The thesis is based on the observation that after years of deflation and a very severe recession important economic indicators turned positive in March 1933 when Franklin D. Roosevelt took office . Consumer prices turned from deflation to a mild inflation, industrial production bottomed out in March 1933, and investment doubled in 1933 with a turnaround in March 1933 . There were no monetary forces to explain that turn around . Money supply was still falling and short term interest rates remained close to zero . Before March 1933 people expected further deflation and a recession so that even interest rates at zero did not stimulate investment . But when Roosevelt announced major regime changes people began to expect inflation and an economic expansion . With these positive expectations, interest rates at zero began to stimulate investment just as they were expected to do . Roosevelt's fiscal and monetary policy regime change helped to make his policy objectives credible . The expectation of higher future income and higher future inflation stimulated demand and investments . The analysis suggests that the elimination of the policy dogmas of the gold standard, a balanced budget in times of crises and small government led endogenously to a large shift in expectation that accounts for about 70--80 percent of the recovery of output and prices from 1933 to 1937 . If the regime change had not happened and the Hoover policy had continued, the economy would have continued its free fall in 1933, and output would have been 30% lower in 1937 than in 1933 . </P> <P> The recession of 1937--38, which slowed down economic recovery from the Great Depression, is explained by fears of the population that the moderate tightening of the monetary and fiscal policy in 1937 would be first steps to a restoration of the pre-March 1933 policy regime . </P>

Who labeled the seven years as the first world war