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Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist, and progressive social campaigner. He was one of the earliest American neoclassical economists, and arguably one of the most prominent and influential economists of the first half of the 20th century. Fisher made significant contributions to utility theory, general equilibrium, the theory of capital and interest, monetary theory (including the quantity theory of money and the distinction between real and nominal interest rates), and the development of index numbers. His work on the debt-deflation theory of economic crises gained renewed interest after the 2008 financial crisis. Fisher also pioneered the field of econometrics and was a co-founder and the first president of the Econometric Society. Despite his profound academic contributions, his public reputation suffered significantly after his optimistic pronouncements about the stock market just before the Wall Street Crash of 1929.

Irving Fisher was born in Saugerties, New York. His father was a Congregational minister who instilled in him a strong sense of social responsibility. Fisher initially intended to study mathematics. He was educated at Yale University, where he received his B.A. in mathematics in 1888, graduating first in his class and serving as Skull and Bones orator. In 1891, Yale awarded him the first Ph.D. in economics granted by the university. His doctoral dissertation, "Mathematical Investigations in the Theory of Value and Prices" (published in 1892), was a groundbreaking work that rigorously applied mathematical methods to analyze general equilibrium theory, independently developing concepts similar to those of Léon Walras. His mentors at Yale included the physicist Josiah Willard Gibbs and the sociologist William Graham Sumner. After graduating from Yale, Fisher studied in Berlin and Paris.

Fisher spent his entire academic career at Yale University. He began as a tutor in mathematics in 1890, became an assistant professor of mathematics in 1893, an assistant professor of political economy in 1895, and was promoted to professor of political economy in 1898, a position he held until his retirement in 1935, after which he became professor emeritus.

Fisher was an exceptionally prolific writer, authoring numerous influential books and articles across a wide range of subjects. Beyond economics, he was an inventor. In 1913, he invented and patented the Index Visible, a rotary card filing system, which he later sold to Kardex Rand (which became part of Remington Rand) in 1925. This invention and his subsequent stock investments made him wealthy, though much of this wealth was lost in the 1929 stock market crash.

He was highly active in professional organizations, serving as President of the American Economic Association in 1918. He was a co-founder of the Econometric Society in 1930 and served as its first president from 1931 to 1933. He also served as President of the American Statistical Association.

Fisher's contributions to economic theory were diverse and profound.

Fisher's work on the theory of capital and interest is among his most celebrated. His major treatises on this subject are "The Nature of Capital and Income" (1906), "The Rate of Interest" (1907), and its more comprehensive and influential revision, "The Theory of Interest" (1930). He framed interest as the price paid for the exchange of present goods for future goods. His theory emphasized two main determinants of the rate of interest:

Time Preference (Impatience): The subjective willingness of individuals to substitute present consumption for future consumption. People generally prefer present goods to future goods, ceteris paribus.
Investment Opportunity Rate (or Marginal Rate of Return over Cost): The objective rate at which present resources can be transformed into future resources through productive investment. Fisher used indifference curves (which he independently developed) to illustrate intertemporal choice and developed the Fisher separation theorem, which states that under certain conditions (perfect and complete capital markets), a firm's investment decision can be made independently of the consumption preferences of its owners. The optimal investment is determined by maximizing the present value of future cash flows, discounted at the market rate of interest.

Fisher was a leading proponent of the quantity theory of money. In his influential book "The Purchasing Power of Money" (1911), he formalized the equation of exchange: MV = PT where:

M = Money supply (total currency)
V = Velocity of circulation of money (the average number of times a unit of money is spent on final goods and services in a given period)
P = Average price level of goods and services
T = Volume of transactions of goods and services (or real output, often denoted as Y in modern formulations, making it MV=PY) Fisher argued that, in the short run, V and T were relatively stable or determined by non-monetary factors, implying a direct and proportional relationship between changes in the money supply (M) and changes in the price level (P). He advocated for monetary policy aimed at stabilizing the price level, proposing a "compensated dollar" or "stable dollar" plan, where the gold content of the dollar would be adjusted to counteract changes in the overall price level, thereby maintaining constant purchasing power.

Fisher is credited with clearly distinguishing between nominal and real interest rates. The Fisher equation, presented in his work "Appreciation and Interest" (1896), states that the nominal interest rate (i) is approximately equal to the real interest rate (r) plus the expected inflation rate (π^e): i ≈ r + π^e More precisely, (1 + i) = (1 + r)(1 + π^e). This equation highlights how inflation erodes the real return on lending and the real cost of borrowing. The Fisher effect posits that, in the long run, the real interest rate is stable, so changes in expected inflation will be fully reflected in nominal interest rates.

Following the Wall Street Crash of 1929 and the ensuing Great Depression, Fisher developed his debt-deflation theory, most notably in his 1933 Econometrica article, "The Debt-Deflation Theory of Great Depressions." He argued that a key mechanism in major depressions is the interaction between excessive debt and falling price levels (deflation). The sequence he described involves:

Over-indebtedness leading to distress selling by debtors.
Contraction of deposit currency as bank loans are paid off, and a slowing of velocity of circulation.
A fall in the level of asset prices, especially if distress selling is widespread.
A still greater fall in the net worths of businesses, precipitating bankruptcies.
A fall in profits.
A reduction in output, in trade, and in employment of labor.
Pessimism and loss of confidence.
Hoarding of money.
A fall in nominal interest rates and a rise in real interest rates (due to deflation). This theory suggests that deflation increases the real burden of debt, leading to defaults, reduced investment and consumption, and a downward economic spiral. This perspective gained renewed attention during and after the 2008 financial crisis.

Fisher made extensive contributions to the theory and construction of index numbers. His book "The Making of Index Numbers" (1922) was a comprehensive and systematic study of the subject, evaluating hundreds of different index number formulas. He proposed several criteria (tests) for good index numbers, such as the time reversal test and the factor reversal test. The Fisher Ideal Index, a geometric mean of the Laspeyres Index and the Paasche Index, satisfies these tests and is still considered a theoretically superior measure, though it can be more computationally demanding.

Fisher was a fervent social campaigner, driven by his strong moral convictions. After a bout with tuberculosis, which he contracted in 1898 and which claimed his father's life, he became a strong advocate for public health, hygiene, and eugenics.

He co-authored the bestseller "How to Live: Rules for Healthful Living Based on Modern Science" (1915, with Eugene Lyman Fisk), which advocated for regular exercise, a balanced diet (emphasizing fresh fruits, vegetables, and whole grains), and avoidance of alcohol and tobacco. He also invented a specialized tent for tuberculosis patients to ensure fresh air.

He was a staunch supporter of Prohibition in the United States, believing alcohol was detrimental to public health and productivity.

Fisher was a prominent advocate of eugenics, serving as president of the American Eugenics Society from 1924 to 1928 and of the Eugenics Research Association. He believed in improving the human race through selective breeding and discouraging reproduction among those he deemed "unfit." This aspect of his work is viewed critically today due to its discriminatory implications and association with racist and ableist ideologies.

He was an advocate for world peace and supported the League of Nations.

Fisher is famously, and somewhat infamously, remembered for his optimistic statements about the stock market shortly before the Wall Street Crash of 1929. On October 16, 1929, just days before the crash began, he declared, "Stock prices have reached what looks like a permanently high plateau." He continued to express optimism even as the market fell, believing a recovery was imminent. The crash resulted in significant personal financial losses for Fisher (estimated at $8-10 million, equivalent to over $100 million today) and severely damaged his public reputation as an economic forecaster, although his academic contributions continued to be highly regarded within the economics profession.

Despite the financial setbacks and damage to his public image, Fisher continued his academic work and social advocacy. It was during the 1930s that he developed his influential debt-deflation theory. He also advocated for 100% reserve banking (the "Chicago Plan") as a way to curb business cycles and prevent bank runs. Irving Fisher died in New York City on April 29, 1947, at the age of 80 from cancer.

Irving Fisher is widely regarded as one of America's greatest and most innovative economists. His theoretical contributions to the theory of interest, monetary economics, and index numbers remain foundational.

His work on the quantity theory of money and the Fisher equation profoundly influenced monetarist economists like Milton Friedman.
The Fisher Ideal Index is still considered a benchmark in price index theory.
His debt-deflation theory has experienced a resurgence of interest, particularly in understanding financial crises and their aftermath, influencing economists like Ben Bernanke and Hyman Minsky.
He was a pioneer in the use of mathematical and statistical methods in economics, contributing significantly to the development of econometrics. James Tobin called him "Yale's greatest economist," and Joseph Schumpeter described him as one of the "greatest economists America has produced," noting his "fire, originality, and a flair for the picturesque." While his social views on eugenics are now condemned, his economic contributions remain a cornerstone of modern economic thought.

Mathematical Investigations in the Theory of Value and Prices (1892)
Appreciation and Interest (1896)
The Nature of Capital and Income (1906)
The Rate of Interest (1907)
National Vitality, Its Wastes and Conservation (Report of National Conservation Commission, Senate Document no. 419, 60th Congress, 2nd session) (1909)
Introduction to Economic Science (1910)
The Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises (1911, revised 1913)
Elementary Principles of Economics (1912)
How to Live: Rules for Healthful Living Based on Modern Science (with Eugene L. Fisk, 1915)
Stabilizing the Dollar (1920)
The Making of Index Numbers: A Study of Their Varieties, Tests, and Reliability (1922)
The Money Illusion (1928)
The Stock Market Crash—And After (1930)
The Theory of Interest as Determined by Impatience to Spend Income and Opportunity to Invest It (1930) (a thorough revision of The Rate of Interest)
Booms and Depressions: Some First Principles (1932)
"The Debt-Deflation Theory of Great Depressions" (Econometrica, Vol. 1, No. 4, October 1933, pp. 337–357)
Stamp Scrip (1933)
100% Money (1935)
Constructive Income Taxation: A Proposal for Reform (with Herbert W. Fisher, 1942)

Neoclassical economics
Quantity theory of money
Fisher equation
Fisher effect
Fisher separation theorem
Debt-deflation
Index number
Fisher Ideal Index
Econometric Society
Eugenics in the United States

Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist, and progressive social campaigner. He was one of the earliest American neoclassical economists, and arguably one of the most prominent and influential economists of the first half of the 20th century. Fisher made significant contributions to utility theory, general equilibrium, the theory of capital and interest, monetary theory (including the quantity theory of money and the distinction between real and nominal interest rates), and the development of index numbers. His work on the debt-deflation theory of economic crises gained renewed interest after the 2008 financial crisis. Fisher also pioneered the field of econometrics and was a co-founder and the first president of the Econometric Society. Despite his profound academic contributions, his public reputation suffered significantly after his optimistic pronouncements about the stock market just before the Wall Street Crash of 1929.

Irving Fisher was born in Saugerties, New York. His father was a Congregational minister who instilled in him a strong sense of social responsibility. Fisher initially intended to study mathematics. He was educated at Yale University, where he received his B.A. in mathematics in 1888, graduating first in his class and serving as Skull and Bones orator. In 1891, Yale awarded him the first Ph.D. in economics granted by the university. His doctoral dissertation, "Mathematical Investigations in the Theory of Value and Prices" (published in 1892), was a groundbreaking work that rigorously applied mathematical methods to analyze general equilibrium theory, independently developing concepts similar to those of Léon Walras. His mentors at Yale included the physicist Josiah Willard Gibbs and the sociologist William Graham Sumner. After graduating from Yale, Fisher studied in Berlin and Paris.

Fisher spent his entire academic career at Yale University. He began as a tutor in mathematics in 1890, became an assistant professor of mathematics in 1893, an assistant professor of political economy in 1895, and was promoted to professor of political economy in 1898, a position he held until his retirement in 1935, after which he became professor emeritus.

Fisher was an exceptionally prolific writer, authoring numerous influential books and articles across a wide range of subjects. Beyond economics, he was an inventor. In 1913, he invented and patented the Index Visible, a rotary card filing system, which he later sold to Kardex Rand (which became part of Remington Rand) in 1925. This invention and his subsequent stock investments made him wealthy, though much of this wealth was lost in the 1929 stock market crash.

He was highly active in professional organizations, serving as President of the American Economic Association in 1918. He was a co-founder of the Econometric Society in 1930 and served as its first president from 1931 to 1933. He also served as President of the American Statistical Association.

Fisher's contributions to economic theory were diverse and profound.

Fisher's work on the theory of capital and interest is among his most celebrated. His major treatises on this subject are "The Nature of Capital and Income" (1906), "The Rate of Interest" (1907), and its more comprehensive and influential revision, "The Theory of Interest" (1930). He framed interest as the price paid for the exchange of present goods for future goods. His theory emphasized two main determinants of the rate of interest:

Time Preference (Impatience): The subjective willingness of individuals to substitute present consumption for future consumption. People generally prefer present goods to future goods, ceteris paribus.
Investment Opportunity Rate (or Marginal Rate of Return over Cost): The objective rate at which present resources can be transformed into future resources through productive investment. Fisher used indifference curves (which he independently developed) to illustrate intertemporal choice and developed the Fisher separation theorem, which states that under certain conditions (perfect and complete capital markets), a firm's investment decision can be made independently of the consumption preferences of its owners. The optimal investment is determined by maximizing the present value of future cash flows, discounted at the market rate of interest.

Fisher was a leading proponent of the quantity theory of money. In his influential book "The Purchasing Power of Money" (1911), he formalized the equation of exchange: MV = PT where:

M = Money supply (total currency)
V = Velocity of circulation of money (the average number of times a unit of money is spent on final goods and services in a given period)
P = Average price level of goods and services
T = Volume of transactions of goods and services (or real output, often denoted as Y in modern formulations, making it MV=PY) Fisher argued that, in the short run, V and T were relatively stable or determined by non-monetary factors, implying a direct and proportional relationship between changes in the money supply (M) and changes in the price level (P). He advocated for monetary policy aimed at stabilizing the price level, proposing a "compensated dollar" or "stable dollar" plan, where the gold content of the dollar would be adjusted to counteract changes in the overall price level, thereby maintaining constant purchasing power.

Fisher is credited with clearly distinguishing between nominal and real interest rates. The Fisher equation, presented in his work "Appreciation and Interest" (1896), states that the nominal interest rate (i) is approximately equal to the real interest rate (r) plus the expected inflation rate (π^e): i ≈ r + π^e More precisely, (1 + i) = (1 + r)(1 + π^e). This equation highlights how inflation erodes the real return on lending and the real cost of borrowing. The Fisher effect posits that, in the long run, the real interest rate is stable, so changes in expected inflation will be fully reflected in nominal interest rates.

Following the Wall Street Crash of 1929 and the ensuing Great Depression, Fisher developed his debt-deflation theory, most notably in his 1933 Econometrica article, "The Debt-Deflation Theory of Great Depressions." He argued that a key mechanism in major depressions is the interaction between excessive debt and falling price levels (deflation). The sequence he described involves:

Over-indebtedness leading to distress selling by debtors.
Contraction of deposit currency as bank loans are paid off, and a slowing of velocity of circulation.
A fall in the level of asset prices, especially if distress selling is widespread.
A still greater fall in the net worths of businesses, precipitating bankruptcies.
A fall in profits.
A reduction in output, in trade, and in employment of labor.
Pessimism and loss of confidence.
Hoarding of money.
A fall in nominal interest rates and a rise in real interest rates (due to deflation). This theory suggests that deflation increases the real burden of debt, leading to defaults, reduced investment and consumption, and a downward economic spiral. This perspective gained renewed attention during and after the 2008 financial crisis.