Irving Fisher
Irving Fisher (February 27, 1867 – April 29, 1947)[1] was an American economist, statistician, inventor, eugenicist and progressive social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt deflation has been embraced by the post-Keynesian school.[2] Joseph Schumpeter described him as "the greatest economist the United States has ever produced",[3] an assessment later repeated by James Tobin[4] and Milton Friedman.[5]
Debt-deflation
Further information: Debt deflation
Following the stock market crash of 1929, and in light of the ensuing Great Depression, Fisher developed a theory of economic crises called debt-deflation, which attributed the crises to the bursting of a credit bubble. 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').[37]
This theory was largely ignored in favor of Keynesian economics, 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. Steve Keen predicted the 2008 recession by using Hyman Minsky's further development of Fisher's work on debt-deflation. Debt-deflation is now the major theory with which Fisher's name is associated.[11]
Social and health campaigns
In 1898, Fisher was diagnosed with tuberculosis, 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, tobacco, and alcohol. In 1924, Fisher wrote an anti-smoking article for the Reader's Digest, which argued that "tobacco lowers the whole tone of the body and decreases its vital power and resistance ... [it] acts like a narcotic poison, like opium and like alcohol, though usually in a less degree".[40]
Fisher supported the legal prohibition of alcohol and wrote three booklets defending prohibition in the United States on grounds of public health and economic productivity.[41] As a proponent of Eugenics he helped found the Race Betterment Foundation in 1906. He also defended eugenics, serving in the scientific advisory board of the Eugenics Record Office and as first president of the American Eugenics Society.[42]