Academic, Economist (1867-1947)
Irving Fisher was an American economist, statistician and inventor. He was described by Joseph Schumpeter as “the greatest economist the United States has ever produced”.
As well as his theory of debt-deflation, he made important contributions to general equilibrium theory, utility theory and inter-temporal choice in markets. His research on the quantity theory of money laid the foundations for the Monetarist school of thought. Fisher also pioneered the use of econometrics with, for instance, his development of index numbers.
Fisher’s most famous theory is debt-deflation. This theory attributes the cause of economic crises to the bursting of a credit bubble. Fisher contends that the bursting of a credit bubble unleashes a domino effect that reverberates throughout the entire economy. After a credit bubble bursts there is distress selling, a contraction of the money supply, a drop in asset prices and profits, a reduction in output, a loss of confidence, money hoarding, a fall in nominal interest rates and an increase in deflation-adjusted interest rates.
Fisher made many practical inventions that made him a wealthy man, including an index filing system patented in 1913 and sold to Remington Rand in 1925.
However, his wealth, as well as his academic reputation, was seriously harmed during the Wall Street Crash of 1929. Just days before the disaster, he famously predicted that stock market prices had “reached what looks like a permanently high plateau.”
After the 1950s, his reputation recovered as his work was rediscovered and embraced by the Neoclassical school of thought. His theory of debt-deflation was also revisited, particularly by post-Keynesians, after the 2008 global financial crisis.
“The effort of the economist is to ‘see’, to picture the interplay of economic elements. The more clearly cut these elements appear in his vision, the better; the more elements he can grasp and hold in his mind at once, the better. The economic world is a misty region. The first explorers used unaided vision. Mathematics is the lantern by which what before was dimly visible now looms up in firm, bold outlines. The old phantasmagoria disappear. We see better. We also see further.”
– Irving Fisher