Academic journal article The American Journal of Economics and Sociology

Celebrating Irving Fisher: The Legacy of a Great Economist

Academic journal article The American Journal of Economics and Sociology

Celebrating Irving Fisher: The Legacy of a Great Economist

Article excerpt

Introduction (1)

Irving Fisher made seminal contributions across an astonishing spectrum of economic science: monetary policy rules, the neoclassical theory of capital and interest, expected inflation as the difference between real and nominal interest, the Fisher "ideal" index number, indexed bonds, correlation analysis, distributed lags, the "Phillips curve," the debt-deflation process, taxing consumption rather than income, the value of human capital and improvement in health, even the computation of general equilibrium. On May 8 and 9, 1998, economists gathered at Fisher's university, Yale, to celebrate his contributions and to examine themes in economics suggested by his work. The publication of William Barber's 14-volume edition of The Works of Irving Fisher in 1997, the 50th anniversary of Fisher's death, provided a suitable occasion for reflecting on Fisher's legacy and inspiration for economics. This volume contains revised versions of the papers and comments presented on that occasion, together with other writings on Fisher by James Tobin.

No other American economist working before World War II has had anything close to the influence that Irving Fisher has on modern economics. James Tobin (1985: 29-30) reports that Fisher led his contemporaries Wesley Clair Mitchell, John Bates Clark, and Frank W. Taussig in column inches in the Social Sciences Citation Index for 1976-1980 by the ratio 9:3:1:1 (with Fisher's lead growing over time), "[m]uch more than the others, moreover, Fisher is cited for substance rather than for history of thought."

In the early 20th century, Fisher was the most cited economist in the world. George Stigler and Claire Friedland (1979) have calculated that Fisher was the economist cited most often in journal articles published in English in all fields of economics in the period 1886 to 1924, but Jeff Biddle (1996: 150-151), who eliminates self-citations, places Alfred Marshall first (and Fisher fourth) for 1904-1924.

In the money and fluctuations literature, Fisher was the most-cited economist in the 1920s (with Mitchell second, and the young Keynes tenth). By the 1940s, Fisher vanished completely from citation lists as John Maynard Keynes captured the profession's attention (Deutscher 1990). Yet contemporary macroeconomics builds largely upon Fisher's foundations. Once remembered primarily for his spectacular mis-prediction of stock prices in October 1929 and for eccentric crusades (reform of the calendar, a new world map projection, Prohibition, the use of mathematics in economics), Fisher emerges in retrospect as a major figure in the development of economics--not least for those innovations his contemporaries found most ludicrous, such as building a hydraulic model to simulate the determination of prices in a general equilibrium system.

What Were Fisher's Contributions?

FISHER'S CONTRIBUTIONS TO THE MODERN THEORY of capital, income, interest, and saving, discussed by John Geanakoplos and James Tobin in this volume, have proved of central importance. The two-period consumption diagram of Fisher's The Rate, of Interest ([1907] 1997, Vol. 3: 409) put intertemporal choice on the same footing as contemporaneous choice among goods (and was promptly extended to international exchange by Enrico Barone in 1908). Fisher's diagram brought together impatience (the marginal rate of time preference, represented by the slope of the indifference curve) and expected rate of return on investment (reflected in the slope of the budget constraint). Like Marshall's supply and demand diagram, Fisher's diagram brought together key concepts of economics and made their interaction conveniently and memorably visible for analysis and teaching. Fisher's diagram is the basis for permanent-income and life-cycle consumption theories, with the simple Keynesian absolute-income hypothesis restricted to cashflow-constrained consumers in imperfect credit markets. Fisher's rate of return over costs, developed in The Rate of Interest and The Theory of Interest ([1930] 1997, Vol. …

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