Foster and Catchings wikipedia entry
In their undergraduate years at the turn of the century, William Trufant Foster and Waddill Cathings had been classmates together in at Harvard. Foster went on to become an college educator, while Catchings had gone into finance. In 1919, they came together again at the Pollack Foundation for Economic Research – Catchings providing the economic expertise, Foster providing the expository rhetoric – and promptly set about addressing the post-war slump.
Foster & Catchings main theses were worked out in Profits (1925) and Money (1928). They argued that insufficient consumer income is what leads to collapses in consumption and hence profits, prices and outputs. They base their theory on a primitive but clumsy version of a multiplier-accelerator mechanism. If retained company profits are hoarded (rather than being lent out), then consumer income is insufficient for consumers to absorb output. They argued that even if the firm invests this hoarded money itself (and thus pays the income out to workers), the problem is not solved: increased investment increases demand, yes, but it also pushes out output even further. The imbalance between aggregate demand and supply, Foster and Catchings argue, will thus maintain itself.
Their theory contains a fatal flaw in the “long-run”, but seen in a short-run, dynamic manner, it is reminiscent of that of Malthus during the General Glut controversy. They publicly offered a cash award to any economist who could prove their argument flawed. Dozens upon dozens of people submitted proofs (e.g. Friedrich Hayek, 1929), but while they acknowledged minor errors, Foster and Catchings maintained that their central thesis remained correct. Apparently, Foster and Catchings had early sympathizers in Paul H. Douglas and Charles F. Roos.
The educator and heterodox monetary economist William Trufant Foster was born in Boston, Massachusetts, on 18 January 1879, and died in Winter Park, Florida, on 18 October 1950. After his father’s early death, Foster worked his way through high school and Harvard University, graduating first in his class in 1901. After teaching at Bates College in Lewiston, Maine, he returned to Harvard to take an A.M. in English in 1904, followed by a Ph.D. from Teachers College of Columbia University. His exceptional success as a teacher of rhetoric and a textbook author, and the vision of an ‘ideal college’ presented in his doctoral dissertation (published in 1911), led to his remarkably early promotion from instructor to full professor at Bowdoin College in Brunswick, Maine, in 1905, and his appointment at the first president of Reed College in Portland, Oregon, in 1910. Foster served as an inspector with the American Red Cross in France after US entry into the First World War. Health problems from overwork, together with controversy over his pacifism, led Foster to resign from Reed College in December 1919. He then became director of the Pollak Foundation for Economic Research, founded in Newton, Massachusetts, by his Harvard classmate Waddill Catchings, an investment banker.