Irving Fisher: American Economist

ABSTRACT

Irving Fisher (1867-1947) was an American Economist, whose important contributions are the utility theory and the general equilibrium. He also laid down the foundation of modern monetary economics. He was a well known economist, and people appreciated his works before the fall of the great depression. Just a few days before the Wall Street Crash of 1929, Fisher had made a statement, claiming that the “stock prices have reached what looks like a permanently high plateau”. His work to counter depression of 1929 and his theory of “debt deflation” were highly ignored by people, as they favored the work of John Maynard Keynes (1883-1946), one of the founders of macroeconomics. Keynes’s solution to overcome the great depression was taken

His important contributions are the utility theory and the general equilibrium. He also laid down the foundation of modern monetary economics. He was a well known economist, and people appreciated his works before the fall of the great depression. The Great Depression, as the name suggests, was the longest, and most widespread depression, which came across in most of the countries in the 1930s, and lasted till 1930s, and in some places, till mid 1940s. There was a severe economic depression in all the countries of the world, be it rich or poor, in the decade prior to the Second World War. It emerged because of the fall in stock prices in the United States of America, which began on 6th of September 1929. This news became famous with the Wall Street crash, also known as the stock market crash of 29th October 1929. This day came to be known as the Black Tuesday in the world history.

Debt deflation, also known as worst deflation or collateral deflation is the theory of economic cycles, according to which, recession and depression in the economy are due to the overall shrinkage of debts. It cites credit bubbles as the key factor in economic crisis. The theory of Debt deflation was developed by the then leading Economist Irving Fisher. Although his theory of debt deflation as an explanation of the great depression was highly ignored during the time of Great depression. It got recovered later by the neo classical

His work was rediscovered in the late 1950s, mainly by the neo classical economists. This theory was largely studied and developed by the Post Keynesian School of Economics. Further, The Financial Instability Hypothesis developed by Hyman Minsky in the 1980s explains how the bubbles form in the economy, where as the theory of debt deflation by Fisher explained how the bubbles burst and its resulting economic effects, thus complimenting Irving Fisher’s theory for providing how the credit bubbles are formed. The theory of debt deflation became a thing of importance in the modern era, after the late 2000s recession. The end of first decade of twenty first century saw recession in the world economy. Its mathematical model has also been recently formulated by an Austrian economist, belonging to Post Keynesian School of