Irving Fisher (February 27, 1867 – April 29, 1947)
was an American
economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
,
statistician
A statistician is a person who works with theoretical or applied statistics. The profession exists in both the private and public sectors.
It is common to combine statistical knowledge with expertise in other subjects, and statisticians may wor ...
, inventor,
eugenicist
Eugenics ( ; ) is a fringe set of beliefs and practices that aim to improve the genetic quality of a human population. Historically, eugenicists have attempted to alter human gene pools by excluding people and groups judged to be inferior or ...
and
progressive social campaigner. He was one of the earliest American
neoclassical economists
Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
, though his later work on
debt deflation
Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. Bank assets fall because of the defaults an ...
has been embraced by the
post-Keynesian
Post-Keynesian economics is a school of economic thought with its origins in ''The General Theory'' of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Wei ...
school.
Joseph Schumpeter
Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian-born political economist. He served briefly as Finance Minister of German-Austria in 1919. In 1932, he emigrated to the United States to become a professor at Ha ...
described him as "the greatest economist the United States has ever produced",
an assessment later repeated by
James Tobin
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He devel ...
and
Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
.
[Milton Friedman, ''Money Mischief: Episodes in Monetary History'', Houghton Mifflin Harcourt (1994) p. 37. ]
Fisher made important contributions to
utility theory
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosopher ...
and
general equilibrium
In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an ov ...
.
He was also a pioneer in the rigorous study of
intertemporal choice Intertemporal choice is the process by which people make decisions about what and how much to do at various points in time, when choices at one time influence the possibilities available at other points in time. These choices are influenced by the ...
in markets, which led him to develop a theory of
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
and
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
s.
His research on the
quantity theory of money
In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directly ...
inaugurated the school of macroeconomic thought known as "
monetarism
Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on measures ...
".
Fisher was also a pioneer of
econometrics
Econometrics is the application of Statistics, statistical methods to economic data in order to give Empirical evidence, empirical content to economic relationships.M. Hashem Pesaran (1987). "Econometrics," ''The New Palgrave: A Dictionary of ...
, including the development of
index numbers
In Statistics, Economics and Finance, an index is a statistical measure of change in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and ...
. Some concepts named after him include the
Fisher equation, the
Fisher hypothesis
In economics, the Fisher effect is the tendency for nominal interest rates to change to follow the inflation rate. It is named after the economist Irving Fisher, who first observed and explained this relationship. Fisher proposed that the real i ...
, the
international Fisher effect The international Fisher effect (sometimes referred to as Fisher's open hypothesis) is a hypothesis in international finance that suggests differences in nominal interest rates reflect expected changes in the spot exchange rate between countries. Th ...
, the
Fisher separation theorem
In economics, the Fisher separation theorem asserts that the primary objective of a corporation will be the maximization of its present value, regardless of the preferences of its shareholders. The theorem therefore separates management's "product ...
and
Fisher market Fisher market is an economic model attributed to Irving Fisher. It has the following ingredients:
* A set of m divisible products with pre-specified supplies (usually normalized such that the supply of each good is 1).
* A set of n buyers.
* For ea ...
.
Fisher was perhaps the first
celebrity
Celebrity is a condition of fame and broad public recognition of a person or group as a result of the attention given to them by mass media. An individual may attain a celebrity status from having great wealth, their participation in sports ...
economist, but his reputation during his lifetime was irreparably harmed by his public statement, just nine days before the
Wall Street Crash of 1929
The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange colla ...
, that the stock market had reached "a permanently high plateau". His subsequent theory of
debt deflation
Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. Bank assets fall because of the defaults an ...
as an explanation of the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, as well as his advocacy of
full-reserve banking
Full-reserve banking (also known as 100% reserve banking, narrow banking, or sovereign money system) is a system of banking where banks do not lend demand deposits and instead, only lend from time deposits. It differs from fractional-reserve bank ...
and
alternative currencies
A complementary currency is a currency or medium of exchange that is not necessarily a national currency, but that is thought of as supplementing or complementing national currencies. Complementary currencies are usually not legal tender and thei ...
, were largely ignored in favor of the work of
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
.
Fisher's reputation has since recovered in academic economics, particularly after his theoretical models were rediscovered in the late 1960s to the 1970s, a period of increasing reliance on mathematical models within the field.
Ben Bernanke
Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Durin ...
, ''Essays on the Great Depression'', (Princeton: Princeton University Press, 2000), p. 24. . Interest in him has also grown in the public due to an increased interest in debt deflation after the
Great Recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
.
[Out of Keynes's shadow](_blank)
The Economist
''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Econo ...
, Feb 12th 2009
Fisher was one of the foremost proponents of the
full-reserve banking
Full-reserve banking (also known as 100% reserve banking, narrow banking, or sovereign money system) is a system of banking where banks do not lend demand deposits and instead, only lend from time deposits. It differs from fractional-reserve bank ...
, which he advocated as one of the authors of
A Program for Monetary Reform
The Chicago plan was a monetary and banking reform program suggested in the wake of the Great Depression by a group of University of Chicago economists including Henry Simons, Garfield Cox, Aaron Director, Paul Douglas, Albert G. Hart, Frank ...
where the general proposal is outlined.
Biography
Fisher was born in
Saugerties, New York
Saugerties () is a town in the northeastern corner of Ulster County, New York. The population was 19,038 at the time of the 2020 Census, a decline from 19,482 in 2010. The village of the same name is located entirely within the town.
Part ...
. His father was a teacher and a
Congregational
Congregational churches (also Congregationalist churches or Congregationalism) are Protestant churches in the Calvinist tradition practising congregationalist church governance, in which each congregation independently and autonomously runs its ...
minister, who raised his son to believe he must be a useful member of society. Despite being raised in religious family, he later on became an
atheist
Atheism, in the broadest sense, is an absence of belief in the existence of deities. Less broadly, atheism is a rejection of the belief that any deities exist. In an even narrower sense, atheism is specifically the position that there no ...
. As a child, he had remarkable mathematical ability and a flair for invention. A week after he was admitted to
Yale College
Yale College is the undergraduate college of Yale University. Founded in 1701, it is the original school of the university. Although other Yale schools were founded as early as 1810, all of Yale was officially known as Yale College until 1887, ...
his father died, at age 53. Irving then supported his mother, brother, and himself, mainly by tutoring. He graduated first in his class with a
BA degree in 1888, having also been elected as a member of the
Skull and Bones
Skull and Bones, also known as The Order, Order 322 or The Brotherhood of Death, is an undergraduate senior secret student society at Yale University in New Haven, Connecticut. The oldest senior class society at the university, Skull and Bone ...
society.
In 1891, Fisher received the first
PhD in economics granted by Yale. His faculty advisors were the theoretical physicist
Willard Gibbs
Josiah Willard Gibbs (; February 11, 1839 – April 28, 1903) was an American scientist who made significant theoretical contributions to physics, chemistry, and mathematics. His work on the applications of thermodynamics was instrumental in t ...
and the sociologist
William Graham Sumner
William Graham Sumner (October 30, 1840 – April 12, 1910) was an American clergyman, social scientist, and classical liberal. He taught social sciences at Yale University—where he held the nation's first professorship in sociology—and be ...
. As a student, Fisher had shown particular talent and inclination for mathematics, but he found that economics offered greater scope for his ambition and social concerns. His thesis, published by Yale in 1892 as ''Mathematical Investigations in the Theory of Value and Prices'', was a rigorous development of the
theory of general equilibrium. When he began writing the thesis, Fisher had not been aware that
Léon Walras
Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economist and Georgist. He formulated the marginal theory of value (independently of William Stanley Jevons and Carl Menger) and pioneered the developmen ...
and his continental European disciples had already covered similar ground. Nonetheless, Fisher's work was a very significant contribution and was immediately recognized and praised as first-rate by such European masters as
Francis Edgeworth
Francis Ysidro Edgeworth (8 February 1845 – 13 February 1926) was an Anglo-Irish philosopher and political economist who made significant contributions to the methods of statistics during the 1880s. From 1891 onward, he was appointed the ...
.
After graduating from Yale, Fisher studied in Berlin and Paris. From 1890 onward, he remained at Yale, first as a tutor, then after 1898 as a professor of political economy, and after 1935 as professor emeritus. He edited the ''Yale Review'' from 1896 to 1910 and was active in many learned societies, institutes, and welfare organizations. He was president of the
American Economic Association
The American Economic Association (AEA) is a learned society in the field of economics. It publishes several peer-reviewed journals acknowledged in business and academia. There are some 23,000 members.
History and Constitution
The AEA was esta ...
in 1918. The
American Mathematical Society
The American Mathematical Society (AMS) is an association of professional mathematicians dedicated to the interests of mathematical research and scholarship, and serves the national and international community through its publications, meetings, ...
selected him as its Gibbs Lecturer for 1929. A leading early proponent of
econometrics
Econometrics is the application of Statistics, statistical methods to economic data in order to give Empirical evidence, empirical content to economic relationships.M. Hashem Pesaran (1987). "Econometrics," ''The New Palgrave: A Dictionary of ...
, in 1930 he founded, with
Ragnar Frisch
Ragnar Anton Kittil Frisch (3 March 1895 – 31 January 1973) was an influential Norwegian economist known for being one of the major contributors to establishing economics as a quantitative and statistically informed science in the early 20th ce ...
and
Charles F. Roos the
Econometric Society
The Econometric Society is an international society of academic economists interested in applying statistical tools to their field. It is an independent organization with no connections to societies of professional mathematicians or statisticians. ...
, of which he was the first president.
Fisher was a prolific writer, producing journalism as well as technical books and articles, and addressing various social issues surrounding the First World War, the prosperous 1920s and the depressed 1930s. He made several practical inventions, the most notable of which was an "index visible filing system" which he patented in 1913
and sold to Kardex Rand (later
Remington Rand
Remington Rand was an early American business machine manufacturer, originally a typewriter manufacturer and in a later incarnation the manufacturer of the UNIVAC line of mainframe computers. Formed in 1927 following a merger, Remington Rand wa ...
) in 1925. This, and his subsequent stock investments, made him a wealthy man until his personal finances were badly hit by the Crash of 1929.
Fisher was also an active social and health campaigner, as well as an advocate of
vegetarianism
Vegetarianism is the practice of abstaining from the consumption of meat (red meat, poultry, seafood, insects, and the flesh of any other animal). It may also include abstaining from eating all by-products of animal slaughter.
Vegetarianism may ...
,
prohibition
Prohibition is the act or practice of forbidding something by law; more particularly the term refers to the banning of the manufacture, storage (whether in barrels or in bottles), transportation, sale, possession, and consumption of alcoholic ...
, and
eugenics
Eugenics ( ; ) is a fringe set of beliefs and practices that aim to improve the genetic quality of a human population. Historically, eugenicists have attempted to alter human gene pools by excluding people and groups judged to be inferior or ...
.
In 1893, he married Margaret
Hazard
A hazard is a potential source of harm
Harm is a moral and legal concept.
Bernard Gert construes harm as any of the following:
* pain
* death
* disability
* mortality
* loss of abil ity or freedom
* loss of pleasure.
Joel Feinberg giv ...
, a granddaughter of Rhode Island industrialist and social reformer
Rowland G. Hazard
Rowland Gibson Hazard (October 9, 1801 – June 24, 1888) was an American industrialist, politician, and social reformer.
Early life
Hazard was born on October 9, 1801 in South Kingstown in Washington County, Rhode Island. He was one of nine ...
.
He died of inoperable colon cancer in New York City in 1947, at the age of 80.
Economic theories
Utility theory
James Tobin
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He devel ...
, writing on the contributions of
John Bates Clark
John Bates Clark (January 26, 1847 – March 21, 1938) was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics, and spent most of his career as ...
and Irving Fisher to neoclassical theory in America argues that American economists contributed in their own way to the preparation of a common ground after the neoclassical revolution. In particular Clark and Irving Fisher "brought neoclassical theory into American journals, classrooms, and textbooks, and its analytical tools into the kits of researchers and practitioners." Already in his doctoral thesis, "Fisher expounds thoroughly the mathematics of utility functions and their maximization, and he is careful to allow for corner solutions." Already then, Fisher "states clearly that neither interpersonally comparable utility nor cardinal utility for each individual is necessary to the determination of equilibrium."
In reviewing the history of
utility
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosopher ...
theory, economist
George Stigler
George Joseph Stigler (; January 17, 1911 – December 1, 1991) was an American economist. He was the 1982 laureate in Nobel Memorial Prize in Economic Sciences and is considered a key leader of the Chicago school of economics.
Early life and ...
wrote that Fisher's doctoral thesis had been "brilliant" and stressed that it contained "the first careful examination of the measurability of the utility function and its relevance to demand theory."
While his published work exhibited an unusual degree of mathematical sophistication for an economist of his day, Fisher always sought to bring his analysis to life and to present his theories as lucidly as possible. For instance, to complement the arguments in his doctoral thesis, he built an elaborate hydraulic machine with pumps and levers, allowing him to demonstrate visually how the equilibrium prices in the market adjusted in response to changes in supply or demand.
Interest and capital
Fisher is probably best remembered today in neoclassical economics for his theory of
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
,
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
, and
interest rates
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
, first exposited in his ''The Nature of Capital and Income'' (1906) and elaborated on in ''The Rate of Interest'' (1907). His 1930 treatise, ''The Theory of Interest'', summed up a lifetime's research into capital,
capital budgeting
Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development project ...
,
credit market
The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, bu ...
s, and the factors (including
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
) that determine interest rates.
Fisher saw that subjective economic value is not only a function of the amount of goods and services owned or exchanged, but also of the moment in time when they are purchased with money. A good available now has a different value than the same good available at a later date; value has a time as well as a quantity dimension. The
relative price
A relative price is the price of a commodity such as a good or service in terms of another; i.e., the ratio of two prices. A relative price may be expressed in terms of a ratio between the prices of any two goods or the ratio between the price o ...
of goods available at a future date, in terms of goods sacrificed now, is measured by the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
. Fisher made free use of the standard diagrams used to teach undergraduate economics, but labeled the axes "consumption now" and "consumption next period" (instead of the usual schematic alternatives of
"apples" and "oranges"). The resulting theory, one of considerable power and insight, was presented in detail in ''The Theory of Interest''.
This model, later generalized to the case of ''K'' goods and ''N'' periods (including the case of infinitely many periods) has become a standard theory of capital and interest, and is described in Gravelle and Rees,
[Gravelle, H., and Rees, R., 2004. ''Microeconomics'', 3rd ed. Pearson Education, ch. 11.] and Aliprantis, Brown, and Burkinshaw.
This theoretical advance is explained in Hirshleifer.
Fisher saw that his theory, via economic policy, was making an impact on society as a whole. Once he brought out his Quantity Theory of Money, it started to bring economic models to life. One of the strongest points that Fisher brings out in discussing interest rates was the power of impatience.
Monetary economics
Fisher's research into the basic theory of prices and interest rates did not touch directly on the great social issues of the day. On the other hand, his
monetary economics
Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions (such as medium of exchange, store of value and unit of account), and it ...
''did'' and this grew to be the main focus of Fisher's mature work.
It was Fisher who (following the pioneering work of
Simon Newcomb
Simon Newcomb (March 12, 1835 – July 11, 1909) was a Canadian–American astronomer, applied mathematician, and autodidactic polymath. He served as Professor of Mathematics in the United States Navy and at Johns Hopkins University. Born in Nov ...
) formulated the
quantity theory of money
In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directly ...
in terms of the "
equation of exchange In monetary economics, the equation of exchange is the relation:
:M\cdot V = P\cdot Q
where, for a given period,
:M\, is the total money supply in circulation on average in an economy.
:V\, is the velocity of money, that is the average frequency w ...
:" Let ''M'' be the total stock of money, ''P'' the
price level
The general price level is a hypothetical measure of overall prices for some set of goods and services (the consumer basket), in an economy or monetary union during a given interval (generally one day), normalized relative to some base set. ...
, ''T'' the amount of transactions carried out using money, and ''V'' the
velocity of circulation of money, so that
:
Later economists replaced ''T'' by the real output ''Y'' (or ''Q''), usually quantified by the real
Gross domestic product
Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...
(GDP).
Fisher's ''Appreciation and Interest'' was an abstract analysis of the behavior of
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
s when the
price level
The general price level is a hypothetical measure of overall prices for some set of goods and services (the consumer basket), in an economy or monetary union during a given interval (generally one day), normalized relative to some base set. ...
is changing. It emphasized the distinction between
real
Real may refer to:
Currencies
* Brazilian real (R$)
* Central American Republic real
* Mexican real
* Portuguese real
* Spanish real
* Spanish colonial real
Music Albums
* ''Real'' (L'Arc-en-Ciel album) (2000)
* ''Real'' (Bright album) (2010)
...
and
nominal interest rate In finance and economics, the nominal interest rate or nominal rate of interest is the rate of interest stated on a loan or investment, without any adjustments or fees. Examples of adjustments or fees
# An adjustment for inflation(in contrast with ...
s:
:
where
is the real interest rate,
is the nominal interest rate, and the inflation
is a measure of the increase in the price level. When inflation is sufficiently low, the real interest rate can be approximated as the nominal interest rate minus the expected
inflation rate
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
. The resulting equation is known as the
Fisher equation in his honor.
Fisher believed that investors and savers – people in general – were afflicted in varying degrees by "
money illusion
In economics, money illusion, or price illusion, is a cognitive bias where money is thought of in nominal, rather than real terms. In other words, the face value (nominal value) of money is mistaken for its purchasing power (real value) at a previ ...
"; they could not see past the money to the goods the money could buy. In an ideal world, changes in the price level would have no effect on production or employment. In the actual world with money illusion,
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
(and deflation) did serious harm. For more than forty years, Fisher elaborated his vision of the damaging "dance of the dollar" and devised various schemes to "stabilize" money, i.e. to stabilize the price level. He was one of the first to subject
macroeconomic
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
data, including the money stock, interest rates, and the price level, to statistical analyses and tests. In the 1920s, he introduced the technique later called
distributed lag In statistics and econometrics, a distributed lag model is a model for time series data in which a regression equation is used to predict current values of a dependent variable based on both the current values of an explanatory variable and the lag ...
s. In 1973, the ''Journal of Political Economy'' posthumously reprinted his 1926 paper on the statistical relation between
unemployment
Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for Work (human activity), w ...
and
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
, retitling it as "I discovered the
Phillips curve
The Phillips curve is an economic model, named after William Phillips hypothesizing a correlation between reduction in unemployment and increased rates of wage rises within an economy. While Phillips himself did not state a linked relationship ...
".
Index numbers
In Statistics, Economics and Finance, an index is a statistical measure of change in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and ...
played an important role in his monetary theory, and his book ''The Making of Index Numbers'' has remained influential down to the present day.
Fisher's main intellectual rival was the Swedish economist
Knut Wicksell
Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926) was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to th ...
. Fisher espoused a more succinct explanation of the quantity theory of money, resting it almost exclusively on long run prices. Wicksell's theory was considerably more complicated, beginning with interest rates in a system of changes in the real economy. Although both economists concluded from their theories that at the heart of the business cycle (and economic crisis) was government monetary policy, their disagreement would not be solved in their lifetimes, and indeed, it was inherited by the policy debates between the Keynesians and monetarists beginning a half-century later.
Debt-deflation
Following the stock market crash of 1929, and in light of the ensuing
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, Fisher developed a theory of
economic crises
A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and man ...
called
debt-deflation
Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. Bank assets fall because of the defaults an ...
, which attributed the crises to the bursting of a
credit bubble
An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be c ...
. Initially, during the upswing over-confident economic agents are lured by the prospect of high profits to increase their debt in order to leverage their gains. According to Fisher, once the credit bubble bursts, this unleashes a series of effects that have serious negative impact on the real economy:
# Debt liquidation and distress selling.
# Contraction of the money supply as bank loans are paid off.
# A fall in the level of asset prices.
# A still greater fall in the net worth of businesses, precipitating bankruptcies.
# A fall in profits.
# A reduction in output, in trade and in employment.
# Pessimism and loss of confidence.
# Hoarding of money.
# A fall in nominal interest rates and a rise in deflation-adjusted interest rates.
Crucially, as debtors try to liquidate or pay off their nominal debt, the fall of prices caused by this defeats the very attempt to reduce the real burden of debt. Thus, while repayment reduces the amount of money owed, this does not happen fast enough since the real value of the dollar now rises ('swelling of the dollar').
This theory was largely ignored in favor of
Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
, in part because of the damage to Fisher's reputation caused by his public optimism about the stock market, just prior to the crash. Debt-deflation has experienced a
revival of mainstream interest since the 1980s, and particularly with the
Late-2000s recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
.
Steve Keen
Steve Keen (born 28 March 1953) is an Australian economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking ...
predicted the 2008 recession by using
Hyman Minsky
Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research att ...
's further development of Fisher's work on debt-deflation. Debt-deflation is now the major theory with which Fisher's name is associated.
Stock market crash of 1929
The stock market
crash of 1929
The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange colla ...
and the subsequent
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
cost Fisher much of his personal wealth and academic reputation. He famously predicted, nine days before the crash, that stock prices had "reached what looks like a permanently high plateau." Irving Fisher stated on October 21 that the market was "only shaking out of the lunatic fringe" and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23, he announced in a banker's meeting "security values in most instances were not inflated." For months after the Crash, he continued to assure investors that a recovery was just around the corner. Once the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
was in full force, he did warn that the ongoing drastic
deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflation ...
was the cause of the disastrous cascading insolvencies then plaguing the American economy because deflation increased the real value of debts fixed in dollar terms. Fisher was so discredited by his 1929 pronouncements and by the failure of a firm he had started that few people took notice of his "debt-deflation" analysis of the Depression. People instead eagerly turned to the ideas of
Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in m ...
. Fisher's debt-deflation scenario has since seen a revival since the 1980s.
Constructive Income Taxation
Lawrence Lokken, the
University of Miami School of Law
The University of Miami School of Law (Miami Law or UM Law) is the law school of the University of Miami, a private research university in Coral Gables, Florida.
Founded in 1926, the University of Miami School of Law is the oldest law school in ...
professor of economics, credits
Fisher's 1942 book with the concept behind the
Unlimited Savings Accumulation Tax, a reform introduced in the United States Senate in 1995 by Senator Pete Domenici (R-New Mexico), former Senator Sam Nunn (D-Georgia), and Senator Bob Kerrey (D-Nebraska). The concept was that unnecessary spending (which is hard to define in a law) can be taxed by taxing income minus all net investments and savings, and minus an allowance for essential purchases, thus making funds available for investment.
Social and health campaigns
In 1898, Fisher was diagnosed with
tuberculosis
Tuberculosis (TB) is an infectious disease usually caused by '' Mycobacterium tuberculosis'' (MTB) bacteria. Tuberculosis generally affects the lungs, but it can also affect other parts of the body. Most infections show no symptoms, in ...
, the same disease that had killed his father. He spent three years in sanatoria, finally making a full recovery. That experience sparked in him a vocation as a health campaigner. He was one of the founders of the
Life Extension Institute, under whose auspices he co-authored the bestselling book ''How to Live: Rules for Healthful Living Based on Modern Science'', published in 1915. He advocated regular exercise and the avoidance of
red meat
In gastronomy, red meat is commonly red when raw and a dark color after it is cooked, in contrast to white meat, which is pale in color before and after cooking. In culinary terms, only flesh from mammals or fowl (not fish) is classified as ...
,
tobacco
Tobacco is the common name of several plants in the genus '' Nicotiana'' of the family Solanaceae, and the general term for any product prepared from the cured leaves of these plants. More than 70 species of tobacco are known, but the ...
, and
alcohol
Alcohol most commonly refers to:
* Alcohol (chemistry), an organic compound in which a hydroxyl group is bound to a carbon atom
* Alcohol (drug), an intoxicant found in alcoholic drinks
Alcohol may also refer to:
Chemicals
* Ethanol, one of sev ...
. In 1924, Fisher wrote an
anti-smoking article for the ''
Reader's Digest
''Reader's Digest'' is an American general-interest family magazine, published ten times a year. Formerly based in Chappaqua, New York, it is now headquartered in midtown Manhattan. The magazine was founded in 1922 by DeWitt Wallace and his wi ...
'', which argued that "tobacco lowers the whole tone of the body and decreases its vital power and resistance ...
tacts like a narcotic poison, like opium and like alcohol, though usually in a less degree".
Fisher supported the legal
prohibition
Prohibition is the act or practice of forbidding something by law; more particularly the term refers to the banning of the manufacture, storage (whether in barrels or in bottles), transportation, sale, possession, and consumption of alcoholic ...
of alcohol and wrote three booklets defending
prohibition in the United States
In the United States from 1920 to 1933, a Constitution of the United States, nationwide constitutional law prohibition, prohibited the production, importation, transportation, and sale of alcoholic beverages. The alcohol industry was curtai ...
on grounds of public health and economic productivity. As a proponent of Eugenics he helped found the
Race Betterment Foundation
The Race Betterment Foundation was a eugenics and racial hygiene organization founded in 1914 at Battle Creek, Michigan by John Harvey Kellogg due to his concerns about what he perceived as "race degeneracy". The foundation supported conferences ...
in 1906. He also defended
eugenics
Eugenics ( ; ) is a fringe set of beliefs and practices that aim to improve the genetic quality of a human population. Historically, eugenicists have attempted to alter human gene pools by excluding people and groups judged to be inferior or ...
, serving in the scientific advisory board of the
Eugenics Record Office
The Eugenics Record Office (ERO), located in Cold Spring Harbor, New York, United States, was a research institute that gathered biological and social information about the American population, serving as a center for eugenics and human heredity ...
and as first president of the
American Eugenics Society
American(s) may refer to:
* American, something of, from, or related to the United States of America, commonly known as the "United States" or "America"
** Americans
Americans are the Citizenship of the United States, citizens and United S ...
.
When his daughter Margaret was diagnosed with
schizophrenia
Schizophrenia is a mental disorder characterized by continuous or relapsing episodes of psychosis. Major symptoms include hallucinations (typically hearing voices), delusions, and disorganized thinking. Other symptoms include social withdra ...
, Fisher had her treated at the
New Jersey State Hospital at Trenton, whose director was the psychiatrist
Henry Cotton. Cotton believed in a "focal
sepsis
Sepsis, formerly known as septicemia (septicaemia in British English) or blood poisoning, is a life-threatening condition that arises when the body's response to infection causes injury to its own tissues and organs. This initial stage is follo ...
" theory, according to which
mental illness
A mental disorder, also referred to as a mental illness or psychiatric disorder, is a behavioral or mental pattern that causes significant distress or impairment of personal functioning. Such features may be persistent, relapsing and remitti ...
resulted from infectious material in the roots of teeth, bowel recesses, and other places in the body. Cotton also claimed that surgical removal of the infected tissue could alleviate the patient's mental disorder. At Trenton, Margaret Fisher had sections of her
bowel
The gastrointestinal tract (GI tract, digestive tract, alimentary canal) is the tract or passageway of the digestive system that leads from the mouth to the anus. The GI tract contains all the major organs of the digestive system, in humans and ...
and
colon removed, which eventually resulted in her death. Irving Fisher nonetheless remained convinced of the validity of Cotton's treatment.
Selected publications
Fisher, Irving Norton, 1961. ''A Bibliography of the Writings of Irving Fisher'' (1961). Compiled by Fisher's son; contains 2425 entries.
* Primary
** 1892. ''Mathematical Investigations in the Theory of Value and Prices''. Scroll to chapte
links.** 1896. ''Appreciation and Interest''
Link.** 1906. ''The Nature of Capital and Income''.
Scroll to chapte
links.** 1907. ''The Rate of Interest''.
[Extracts]
from Preface and Appendix to ch. VII.
** 1910, 1914. ''Introduction to Economic Science''. Sectio
links.
** 1911a, 1922, 2nd ed. ''The Purchasing Power of Money: Its Determination and Relation to Credit, Interest, and Crises''. Scroll to chapte
from Library of Economics and Liberty
Liberty Fund, Inc. is an American private educational foundation headquartered in Carmel, founded by Pierre F. Goodrich. Through publishing, conferences, and educational resources, the operating mandate of the Liberty Fund was set forth in an un ...
(LE&L)
Full text
of 1920 edition online via FRASER Fraser may refer to:
Places Antarctica
* Fraser Point, South Orkney Islands
Australia
* Fraser, Australian Capital Territory, a suburb in the Canberra district of Belconnen
* Division of Fraser (Australian Capital Territory), a former federal ele ...
** 1911b, 1913. ''Elementary Principles of Economics''. Scroll to chapte
links.
** 1915. ''How to Live: Rules for Healthful Living Based on Modern Science'' (with Eugene Lyon Fisk)
Link.
** 1918, "Is 'Utility' the Most Suitable Term for the Concept It is Used to Denote?" ''American Economic Review'', pp. 335–37]
Reprint.
** 1921a. "Dollar Stabilization," ''Encyclopædia Britannica'' 12th ed.. XXX, pp. 852–853. Reprint pag
from LE&L.
** 1921b, ''The Best Form of Index Number,'' ''American Statistical Association Quarterly''. 17(133), pp
pp. 533–537
** 1922. ''The Making of Index Numbers: A Study of Their Varieties, Tests, and Reliability''. Scroll to chapte
links
** 1923, "The Business Cycle Largely a 'Dance of the Dollar'," ''Journal of the American Statistical Association'', 18, pp. 1024–28
Link.
** 1926, "A Statistical Relation between Unemployment and Price Changes," ''International Labour Review'', 13(6),
pp. 785–92
Reprinted as 1973, "I Discovered the Phillips Curve: A Statistical Relation between Unemployment and Price Changes'," ''Journal of Political Economy'', 81(2, Part 1),
pp. 496–502
** 1927, "A Statistical Method for Measuring 'Marginal Utility' and Testing the Justice of a Progressive Income Tax" in ''Economic Essays Contributed in Honor of John Bates Clark ''.
** 1928, The Money Illusion, New York: Adelphi Company. Scroll to chapter-previe
links.
** 1930a. ''The Stock Market Crash and After''.
** 1930b. ''The Theory of Interest''.Chapter I.
Chapte
each numbered by paragraph via LE&L.
** 1932. ''Booms and Depressions: Some First Principles''
full text online
via FRASER Fraser may refer to:
Places Antarctica
* Fraser Point, South Orkney Islands
Australia
* Fraser, Australian Capital Territory, a suburb in the Canberra district of Belconnen
* Division of Fraser (Australian Capital Territory), a former federal ele ...
.
**
** 1933b. ''Stamp Scrip''
full text online
** 1935. ''100% Money''
full text online
** 1942. "Constructive Income Taxation: A Proposal for Reform." New York: Harper & Brothers.
** 1996. ''The Works of Irving Fisher.'' edited by William J. Barber et al. 14 volumes London : Pickering & Chatto.
See also
* Chicago plan
The Chicago plan was a monetary and banking reform program suggested in the wake of the Great Depression by a group of University of Chicago
The University of Chicago (UChicago, Chicago, U of C, or UChi) is a private research university i ...
* Eugenics in the United States
Eugenics, the set of beliefs and practices which aims at improving the genetic quality of the human population, played a significant role in the history and culture of the United States from the late 19th century into the mid-20th century. T ...
* Ham and Eggs Movement The Ham and Eggs movement was an old-age pension movement in California during the 1930s. It was founded by Robert Noble, a controversial radio personality, and Willis Allen. It grew out of a pension movement similar to the one advocated by Franc ...
, California pension reform plan, 1938–40
* Library of Economics and Liberty
Liberty Fund, Inc. is an American private educational foundation headquartered in Carmel, founded by Pierre F. Goodrich. Through publishing, conferences, and educational resources, the operating mandate of the Liberty Fund was set forth in an un ...
* Marginalism
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of wa ...
* Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
* 2018 Swiss sovereign-money initiative
References
Further reading
* Allen, Robert Loring (1993). ''Irving Fisher: A Biography''
*Dimand, Robert W. (2020). " J. Laurence Laughlin versus Irving Fisher on the quantity theory of money, 1894 to 1913." ''Oxford Economic Papers''
* Dimand, Robert W. (2003). "Irving Fisher on the International Transmission of Booms and Depressions through Monetary Standards." ''Journal of Money, Credit & Banking''. Vol: 35#1 pp 49+
online edition
* Dimand, Robert W. (1993). "The Dance of the Dollar: Irving Fisher's Monetary Theory of Economic Fluctuations," ''History of Economics Review'' 20:161–172.
* Dimand, Robert W. (1994). "Irving Fisher's Debt-Deflation Theory of Great Depressions," ''Review of Social Economy'' 52:92–107
*
* Dimand, Robert W., and Geanakoplos, John (2005). "Celebrating Irving Fisher: The Legacy of a Great Economist" ''American Journal of Economics & Sociology,'' Jan 2005, Vol. 64 Issue 1, pp. 3–18
* (1958). ''The Economic Mind in American Civilization'', vol. 3.
* Fellner, William, ed. (1967). ''Ten Economic Studies in the Tradition of Irving Fisher''
* Fisher, Irving Norton (1956). ''My Father Irving Fisher''.
*
* Schumpeter, Joseph (1951). ''Ten Great Economists'': 222–38.
* Schumpeter, Joseph (1954). ''A History of Economic Analysis'' (1954)
* Thaler, Richard (1999).
Irving Fisher: Behavioral Economist
" ''American Economic Review''.
* Tobin, James
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He devel ...
(1987). "Fisher, Irving," '' The New Palgrave: A Dictionary of Economics'', Vol. 2: 369–76. Reprinted in ''American Journal of Economics and Sociology'', Jan, 2005, 1
pages.
* Tobin, James (1985). "Neoclassical Theory in America: J. B. Clark and Fisher" ''American Economic Review'' (Dec 1985) vol 75#6 pp. 28–3
in JSTOR
External links
at McMaster University
McMaster University (McMaster or Mac) is a public research university in Hamilton, Ontario, Canada. The main McMaster campus is on of land near the residential neighbourhoods of Ainslie Wood and Westdale, adjacent to the Royal Botanical Ga ...
* New School for Social Research
The New School for Social Research (NSSR) is a graduate-level educational institution that is one of the divisions of The New School in New York City, United States. The university was founded in 1919 as a home for progressive era thinkers. NSSR ...
website:
*
Irving Fisher, 1867–1947.
Includes a photograph of the young Fisher. For a photograph of the older man, se
Irving Fisher
on th
page.
*
* Irving Fisher Papers (MS 212). Manuscripts and Archives, Yale University Librar
Herbert Scarf, William C.Brainard, "How to Compute Equilibrium Prices in 1891". Cowles Foundation Discussion Paper 1272, August 2000
– for the description of Fisher's hydraulic apparatus.
*
*
*
Works by or about Irving Fisher
on FRASER Fraser may refer to:
Places Antarctica
* Fraser Point, South Orkney Islands
Australia
* Fraser, Australian Capital Territory, a suburb in the Canberra district of Belconnen
* Division of Fraser (Australian Capital Territory), a former federal ele ...
*
{{DEFAULTSORT:Fisher, Irving
American atheists
Economists from New York (state)
American statisticians
Neoclassical economists
1867 births
1947 deaths
American temperance activists
Activists from New York (state)
Tobacco researchers
American eugenicists
Presidents of the American Economic Association
Presidents of the American Statistical Association
Fellows of the Econometric Society
Presidents of the Econometric Society
Yale University alumni
People from Saugerties, New York
19th-century American economists
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Mathematicians from New York (state)