- 22 Aug, 23
Irving Fisher 101: The Famous American Economist
Irving Fisher 101: Who is the Famous American Economist? in our article of Zatrun.com, we will cover in detail everything you need to know about Irving Fisher, the famous American Economist and also the statistician, inventor, eugenicist and advanced social campaigner that our readers are curious about.
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Who is Irving Fisher?
Irving Fisher was an American economist, statistician, inventor, eugenicist, and advanced social campaigner, born on February 27, 1867, and died on April 29, 1947. Fisher was one of the American neoclassical economists, but his work on debt deflation was later adopted by the post-Keynesian school. Joseph Schumpeter described him as “the greatest economist America has ever produced,” while James Tobin and Milton Friedman echoed the same sentiment.
Fisher made significant contributions to utility theory and general equilibrium. He directed close scrutiny to the selection of time intervals in markets, which led to his development of capital and interest rate theory. His quantity theory of money study initiated the macroeconomic thought school known as “monetarism.” Fisher was also a pioneer in econometrics, including index numbers. The concepts named after him include the Fisher equation, Fisher hypothesis, international Fisher effect, Fisher separation theorem, and Fisher market.
Fisher is considered the first famous person among economists, but his statement nine days before the 1929 Wall Street Crash that “stock prices have reached what looks like a permanently high plateau” permanently damaged his reputation. His debt deflation theory, together with his advocacy of full-reserve banking and alternative currencies, was preferred over the works of John Maynard Keynes in explaining the Great Depression.
Irving Fisher and Utility Theory:
In the United States, economists attempted to create a common ground after the neoclassical revolution by examining the contributions of James Tobin, John Bates Clark, and Irving Fisher to neoclassical theory. Clark and Fisher, in particular, brought neoclassical theory to American journals, classes, and books, and provided researchers and practitioners with their analytical tools.
In his doctoral thesis titled “The Mathematics of Utility and Maximization,” Fisher studied the mathematical analysis of utility functions, paying attention to corner solutions. As Fisher stated, “it is not necessary to determine interpersonal comparable utility or appreciable utility for each individual to determine equilibrium.”
Interest and Capital:
Fisher is remembered in neo-classical economics for his theory on capital, investment, and interest rates presented in his works The Nature of Capital and Income (1906) and The Rate of Interest (1907). His 1930 book, The Theory of Interest, summarizes a lifelong study on capital, capital budgeting, credit markets, and factors (including inflation) that determine interest rates.
Fisher saw that economic value is not only based on the quantity of goods and services or traded amounts, but also on the importance of time purchased with money. A present good has a different value than the same good available at a later time; value has a temporal dimension as well as a quantitative one.
The relative price of future goods is measured in terms of present goods sacrificed and is measured by the interest rate. Fisher freely used standard diagrams taught to university economics students but labeled the axes “present consumption” and “next-period consumption” (instead of the commonly used “apples” and “oranges” schematic). The resulting theory is presented in detail in The Theory of Interest, which is a powerful and insightful theory.
The Stock Market Crash of 1929:
The 1929 stock market crash and the ensuing Great Depression caused Fisher to lose much of his personal wealth and academic reputation. Nine days before the crash, he predicted that stocks had reached a “permanently high plateau.” On October 21st, Irving Fisher stated that the market could “shake out the lunatic fringe” and that prices had not caught up to their true values and should be much higher.
In the weeks following the crisis, Fisher attempted to reassure investors that a recovery was just around the corner. When the Depression was in full swing, he warned that the continuing sharp deflation was causing bankruptcies that were wreaking havoc on the U.S. economy because deflation was increasing the real value of dollar-denominated fixed debts. Fisher was so weakened by his 1929 statements and the failure of a firm he had founded that few paid attention to his “debt-deflation” analysis of the Depression. People turned eagerly to Keynes’ ideas instead. Fisher’s debt-deflation scenario has been revived since the 1980s.