Written by John Lounsbury
With the current stock market turbulence and the massive collapse of interest rates, it is a good time to review the Theory of Debt Deflation formulated by Irving Fisher (published in 1933) near the 1932 low point of the Great Depression in the U.S. .
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From the Fisher biography on Wikipedia:
Irving Fisher (February 27, 1867 – April 29, 1947)[1] was an American economist, statistician, inventor, 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]
Fisher made important contributions to utility theory and general equilibrium.[6][7] He was also a pioneer in the rigorous study of intertemporal choice in markets, which led him to develop a theory of capital and interest rates.[4] His research on the quantity theory of money inaugurated the school of macroeconomic thought known as “monetarism.”[8] Fisher was also a pioneer of econometrics, including the development of index numbers. Some concepts named after him include the Fisher equation, the Fisher hypothesis, the international Fisher effect, the Fisher separation theorem and Fisher market.
Fisher was perhaps the first celebrity economist, but his reputation during his lifetime was irreparably harmed by his public statements, just prior to the Wall Street Crash of 1929, claiming that the stock market had reached “a permanently high plateau”. His subsequent theory of debt deflation as an explanation of the Great Depression, as well as his advocacy of full-reserve banking and alternative currencies, were largely ignored in favor of the work of John Maynard Keynes.[4] Fisher’s reputation has since recovered in neoclassical economics, particularly after his work was rediscovered in the late 1950s,[4][9][10] and more widely due to an increased interest in debt deflation after the late-2000s recession.[11]
Having made numerous contributions to economic theory, he later became the foremost proponent of the full-reserve banking reform until his death. He was one of the authors of A Program for Monetary Reform where the general concepts of 100% reserve system is outlined.[12]
We have not found a good comprehensive video documentary on Irving Fisher so we present four short videos. These are:
Irving Fisher (Julie Li) 8:25 Brief biography and short summary of Debt Deflation Theory.
Source: YouTube
Quantity Theory of Money – Fisher Equation (EconplusDal) 7:55 Explains the basic theory of monetarism stated by Fisher and made famous by Milton Friedman.
Source: YouTube
Irving Fisher’s Warning To Margin Traders (me com) 3:11 This film recording of Fisher from 30 October 1929 records his words the day after Black Tuesday (which started the Great Crash leading into the Great Depression), 9 days after he wrote that the market was “only shaking out of the lunatic fringe“, and 14 days after his infamous quote appeared in The New York Times that stock prices had “reached what looks like a permanently high plateau.”
Source: YouTube
Irving Fisher – Debt Deflation (Steve Keen) 5:52
Source: YouTube
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