Irving Fisher

Irving FisherIrving Fisher was an American economist (1867-1947), professor of Political Economy at Yale University, known for his contributions to quantitative economics (works such as “The Nature of Capital and Income”, 1906, and “The Purchasing Power of Money”, 1911) and especially the development of index numbers. He also addressed interest rates, in his opinion governed by two interacting forces: the impatience of individuals in terms of exchanging future income for current income, and the principle of yield paid by doing so. In his “Appreciation and interest”, 1896, Fisher showed the relation between the nominal interest rate (i), the real interest rate (r) and inflation (Π) using an equation, known nowadays as the Fisher equation:

i ≈ r + Π

Although this relation derived from earlier works by Jacob de Haas, Irving Fisher’s formula is an easier way to represent this relation.

In the early autumn of 1929, shortly before the famous Black Thursday, Irving Fisher said, “stock prices have reached what looks like a permanently high plateau.” After the stock Crash, he lost his credibility, being this the reason why his work was not taken seriously until decades later.

Predecessor of monetarism, and following the works of bullionists, David Hume, the School of Salamanca and John Stuart Mill, he showed that prices vary depending on the volume of money in circulation, being this variation as shown by the equation of exchange, which he first depicted in his book “The Purchasing Power of Money“.