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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 Theory, theoretical or applied statistics. The profession exists in both the private sector, private and public sectors. It is common to combine statistical knowledge with expertise in other subjects, a ...
, inventor,
eugenicist Eugenics is a set of largely discredited beliefs and practices that aim to improve the genetics, genetic quality of a human population. Historically, eugenicists have attempted to alter the frequency of various human Phenotype, phenotypes by ...
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 goo ...
, 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 ...
school.
Joseph Schumpeter Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian political economist. He served briefly as Finance Minister of Austria in 1919. In 1932, he emigrated to the United States to become a professor at Harvard Unive ...
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 University, Harvard and Yale Uni ...
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 ...
.Milton Friedman, ''Money Mischief: Episodes in Monetary History'', Houghton Mifflin Harcourt (1994) p. 37. Fisher made important contributions to
utility theory In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a Normative economics, normative context, utility refers to a goal or ob ...
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 In economics, intertemporal choice is the study of the relative value people assign to two or more payoffs at different points in time. This relationship is usually simplified to today and some future date. Intertemporal choice was introduced by ...
in markets, which led him to develop a theory of
capital Capital and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...
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, ...
s. His research on the
quantity theory of money The quantity theory of money (often abbreviated QTM) is a hypothesis within monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation (i.e., the money supply) ...
inaugurated the school of macroeconomic thought known as "
monetarism Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation. It gained prominence in the 1970s, but was mostly abandoned as a direct guidance to monetar ...
". Fisher was also a pioneer of
econometrics Econometrics is an application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics", '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...
, including the development of
index numbers In economics, statistics, and finance, an index is a number that measures how a group of related data points—like prices, company performance, productivity, or employment—changes over time to track different aspects of economic health from var ...
. Some concepts named after him include the Fisher equation, the Fisher hypothesis, the international Fisher effect, the Fisher separation theorem and Fisher market. Fisher was perhaps the first
celebrity Celebrity is a condition of fame and broad public recognition of a person or group due to the attention given to them by mass media. The word is also used to refer to famous individuals. A person may attain celebrity status by having great w ...
economist, but his reputation during his lifetime was irreparably harmed by his public statement, just nine days before the Wall Street Crash of 1929, 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 was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
, as well as his advocacy of
full-reserve banking Full-reserve banking (also known as 100% reserve banking, or sovereign money system) is a system of banking where banks do not lend Demand deposit, demand deposits and instead only lend from time deposits. It differs from fractional-reserve bankin ...
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 the ...
, 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 and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...
. 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 Federal Reserve, he was appointed a distinguished fellow at the Brookings Insti ...
, ''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 market decline in economies around the world that occurred from late 2007 to mid-2009.
.Out of Keynes's shadow
The Economist ''The Economist'' is a British newspaper published weekly in printed magazine format and daily on Electronic publishing, digital platforms. It publishes stories on topics that include economics, business, geopolitics, technology and culture. M ...
, Feb 12th 2009
Fisher was one of the foremost proponents of the
full-reserve banking Full-reserve banking (also known as 100% reserve banking, or sovereign money system) is a system of banking where banks do not lend Demand deposit, demand deposits and instead only lend from time deposits. It differs from fractional-reserve bankin ...
, which he advocated as one of the authors of
A Program for Monetary Reform The Chicago Plan was introduced by University of Chicago economists in 1933 as a comprehensive plan to reform the monetary and banking system of the United States. The Great Depression had been caused in part by excessive private bank lending ...
where the general proposal is outlined.


Biography

Fisher was born in
Saugerties, New York Saugerties () is a Administrative divisions of New York#Town, town in the northeastern corner of Ulster County, New York, Ulster County, New York (state), New York. The population was 19,038 at the time of the 2020 United States census, 2020 c ...
. His father was a teacher and a
Congregational Congregationalism (also Congregational Churches or Congregationalist Churches) is a Reformed Christianity, Reformed Christian (Calvinist) tradition of Protestant Christianity in which churches practice Congregationalist polity, congregational ...
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 society#Colleges and universities, secret student society at Yale University in New Haven, Connecticut. The oldest senior-class ...
society. In 1891, Fisher received the first
PhD A Doctor of Philosophy (PhD, DPhil; or ) is a terminal degree that usually denotes the highest level of academic achievement in a given discipline and is awarded following a course of graduate study and original research. The name of the deg ...
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 mechanical engineer and scientist who made fundamental theoretical contributions to physics, chemistry, and mathematics. His work on the applications of thermodynami ...
and the sociologist
William Graham Sumner William Graham Sumner (October 30, 1840 – April 12, 1910) was an American clergyman, social scientist, and neoclassical liberal. He taught social sciences at Yale University, where he held the nation's first professorship in sociology and bec ...
. 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. He based his mathematical theory on analogies with
classical mechanics Classical mechanics is a Theoretical physics, physical theory describing the motion of objects such as projectiles, parts of Machine (mechanical), machinery, spacecraft, planets, stars, and galaxies. The development of classical mechanics inv ...
, providing a concordance table between mechanics and economics and visual mechanistic models of the workings of economic markets. 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 economics, mathematical economist and Georgist. He formulated the Marginalism, marginal theory of value (independently of William Stanley Jevons and Carl ...
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. After graduating from Yale, Fisher studied in
Berlin Berlin ( ; ) is the Capital of Germany, capital and largest city of Germany, by both area and List of cities in Germany by population, population. With 3.7 million inhabitants, it has the List of cities in the European Union by population withi ...
and
Paris Paris () is the Capital city, capital and List of communes in France with over 20,000 inhabitants, largest city of France. With an estimated population of 2,048,472 residents in January 2025 in an area of more than , Paris is the List of ci ...
. 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 elected to the
American Academy of Arts and Sciences The American Academy of Arts and Sciences (The Academy) is one of the oldest learned societies in the United States. It was founded in 1780 during the American Revolution by John Adams, John Hancock, James Bowdoin, Andrew Oliver, and other ...
in 1912. He was president of the
American Economic Association The American Economic Association (AEA) is a learned society in the field of economics, with approximately 23,000 members. It publishes several peer-reviewed journals, including the Journal of Economic Literature, American Economic Review, an ...
in 1918. He was elected to the
American Philosophical Society The American Philosophical Society (APS) is an American scholarly organization and learned society founded in 1743 in Philadelphia that promotes knowledge in the humanities and natural sciences through research, professional meetings, publicat ...
in 1927. 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 an application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics", '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...
, in 1930 he founded, with
Ragnar Frisch Ragnar Anton Kittil Frisch (3 March 1895 – 31 January 1973) was an influential Norwegian economist and econometrician known for being one of the major contributors to establishing economics as a quantitative and statistically informed science ...
and Charles F. Roos the
Econometric Society The Econometric Society is an international society of academic economists interested in applying statistical tools in the practice of econometrics. It is an independent organization with no connections to societies of professional mathematicians o ...
, 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
World War I World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...
, 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, Inc. 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 ...
) 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 Eating, consumption of meat (red meat, poultry, seafood, insects as food, insects, and the flesh of any other animal). It may also include abstaining from eating all by-products of animal slau ...
,
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 b ...
, and
eugenics Eugenics is a set of largely discredited beliefs and practices that aim to improve the genetic quality of a human population. Historically, eugenicists have attempted to alter the frequency of various human phenotypes by inhibiting the fer ...
. In 1893, he married Margaret
Hazard A hazard is a potential source of harm. Substances, events, or circumstances can constitute hazards when their nature would potentially allow them to cause damage to health, life, property, or any other interest of value. The probability of that ...
, a granddaughter of Rhode Island industrialist and social reformer Rowland G. Hazard. 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 University, Harvard and Yale Uni ...
, 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 a ...
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 In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a normative context, utility refers to a goal or objective that we wish ...
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 e ...
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 and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...
,
investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...
, 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, ...
, 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, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, repla ...
,
credit market The bond market (also debt market or credit market) is a financial market in which 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, ...
s, and the factors (including
inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
) 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 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, ...
. 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 theories of money: it provides a framework for analyzing money and considers its functions (as medium of exchange, store of value, and unit of account), and it considers how m ...
''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 Canadians, Canadian–Americans, American astronomer, applied mathematician, and autodidactic polymath. He served as Professor of Mathematics in the United States Navy and at Johns Hopkins ...
) formulated the
quantity theory of money The quantity theory of money (often abbreviated QTM) is a hypothesis within monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation (i.e., the money supply) ...
in terms of the " equation of exchange:" 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 number of transactions carried out using money, and ''V'' the velocity of circulation of money, so that: :M\cdot V = P\cdot T 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 monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...
(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, ...
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 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 for inflation. Examples of adjustments or fees # An adjustment for inflation (in contr ...
s: :r=\frac-1 \simeq i - \pi where r is the real interest rate, i is the nominal interest rate, and the inflation \pi 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 average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
. 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"; 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 average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
(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 is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/ GDP ...
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 lags. 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 the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...
and
inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
, retitling it as "I discovered the
Phillips curve The Phillips curve is an economic model, named after Bill Phillips, that correlates reduced unemployment with increasing wages in an economy. While Phillips did not directly link employment and inflation, this was a trivial deduction from his ...
".
Index numbers In economics, statistics, and finance, an index is a number that measures how a group of related data points—like prices, company performance, productivity, or employment—changes over time to track different aspects of economic health from var ...
played an important role in his monetary theory. Bert M. Balk called his book ''The Making of Index Numbers'' "still impressive" in 2012. Fisher's main intellectual rival was the Swedish economist
Knut Wicksell Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926) was a Swedish economist of the Stockholm school. He was professor at Uppsala University and Lund University. He made contributions to theories of population, value, capital and mon ...
. 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 was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
, 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 ma ...
called debt-deflation, which attributed the crises to the bursting of a
credit bubble Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
. 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 macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...
, 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 market decline in economies around the world that occurred from late 2007 to mid-2009.
.
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. Keen was formerly an associate profe ...
predicted the 2008 recession by using
Hyman Minsky Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist and economy professor at Washington University in St. Louis. A distinguished scholar at the Levy Economics Institute of Bard College, his research was inten ...
'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 and the subsequent
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
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 was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
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% and becomes negative. While inflation reduces the value of currency over time, deflation increases i ...
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. 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 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), also known colloquially as the "white death", or historically as consumption, is a contagious disease usually caused by ''Mycobacterium tuberculosis'' (MTB) bacteria. Tuberculosis generally affects the lungs, but it can al ...
, 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 ...
,
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 may refer to: Common uses * Alcohol (chemistry), a class of compounds * Ethanol, one of several alcohols, commonly known as alcohol in everyday life ** Alcohol (drug), intoxicant found in alcoholic beverages ** Alcoholic beverage, an alco ...
. 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 b ...
of alcohol and wrote three booklets defending
prohibition in the United States The Prohibition era was the period from 1920 to 1933 when the United States prohibited the production, importation, transportation, and sale of alcoholic beverages. The alcohol industry was curtailed by a succession of state legislatures, an ...
on grounds of public health and economic productivity. As a proponent of Eugenics he helped found the Race Betterment Foundation in 1906. He also defended
eugenics Eugenics is a set of largely discredited beliefs and practices that aim to improve the genetic quality of a human population. Historically, eugenicists have attempted to alter the frequency of various human phenotypes by inhibiting the fer ...
, serving in the scientific advisory board of the Eugenics Record Office and as first president of the
American Eugenics Society The American Eugenics Society (AES) was a pro-eugenics organization dedicated to "furthering the discussion, advancement, and dissemination of knowledge about biological and sociocultural forces which affect the structure and composition of huma ...
. When his daughter Margaret was diagnosed with
schizophrenia Schizophrenia () is a mental disorder characterized variously by hallucinations (typically, Auditory hallucination#Schizophrenia, hearing voices), delusions, thought disorder, disorganized thinking and behavior, and Reduced affect display, f ...
, 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 is a potentially life-threatening condition that arises when the body's response to infection causes injury to its own tissues and organs. This initial stage of sepsis is followed by suppression of the immune system. Common signs and s ...
" theory, according to which
mental illness A mental disorder, also referred to as a mental illness, a mental health condition, or a psychiatric disability, is a behavioral or mental pattern that causes significant distress or impairment of personal functioning. A mental disorder is ...
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 tract is the largest of the body's systems, after the cardiovascular system. T ...
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 (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 ...
** 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 ...
. ** ** 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 introduced by University of Chicago economists in 1933 as a comprehensive plan to reform the monetary and banking system of the United States. The Great Depression had been caused in part by excessive private bank lending ...
*
Eugenics in the United States Eugenics, the set of beliefs and practices which aims at improving the Genetics, 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 c ...
* Ham and Eggs Movement, California pension reform plan, 1938–40 * Library of Economics and Liberty *
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 ...
* 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 (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, Ontario, Ainslie Wood and Westdale, Ontario, Westd ...
*
New School for Social Research The New School for Social Research (NSSR), previously known as The University in Exile and The New School University, is a graduate-level educational division of The New School in New York City, United States. NSSR enrolls more than 1,000 stud ...
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 ...
* {{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 Eugenics Society members American segregationists 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 20th-century American economists Mathematicians from New York (state) Mary Institute and St. Louis Country Day School alumni Members of the American Philosophical Society Members of Skull and Bones