Some reflections on technical progress in financing small firms ∗

Starting from a comparison of Josef Steindl's observations on the problems of the financing of small firms, with the implications of the Modigiani – Miller approach to financial structure, this paper investigates relationships between financial leverage and operating leverage by the application of option pricing theory to the value of a firm's debt. Drawing on possible differences between the second-hand break-up value and the present value of the flow of earnings from a firm's assets, it suggests linkages between production structure and firm financial structure. It then extends these results to resolving the problems of providing market financing for the creation and evolution of small firms in industrialized and transforming economies.     

What we could have learned from the New Deal in dealing with the recent global recession**

Modern policy-makers have learned little from the Great Depression and the policy responses of the 1930s. Yet, there is a great deal to learn from the New Deal: quelling the fear and uncertainty of mass unemployment in the pragmatic, experimental process through which the tool for achieving this objective—directed government expenditure—was accepted, even though the New Deal’s public works policies and direct provision of paid employment, rather than being informed by a Keynesian theory of macroeconomic stabilization, were designed to support morale, provide relief from the suffering and uncertainty of unemployment, and serve as a bulwark against more interventionist alternatives. Countering the deep uncertainty in the real sector of the economy thus collided with Roosevelt’s commitment to rein in fiscal deficits, and the resolution of this internal conflict in favor of support for employment and incomes provides the essential, largely ignored lesson of the 1930s.