### Topic Page: Fisher, Irving (1867 - 1947)

**Fisher, Irving**

*The Hutchinson Unabridged Encyclopedia with Atlas and Weather Guide*

US economist, noted for developing the quantity theory of money. His contributions ran all the way from mathematical statistics to monetary doctrine and the theory of value and prices to the theory of capital and interest.

His most famous book The Purchasing Power of Money (1911) was organized around the ‘equation of exchange’: MV = PT, with M standing for the money supply, V for the velocity of circulation, or the number of times a year that the stock of money turns over, P for the level of prices, and T for the total volume of transactions (that is, all goods bought and sold in a year). If V and T are relatively stable, the equation implies that an increase in the money supply causes inflation. Fisher was fully aware that the quantity theory of money had frequently been defended by its advocates as a truism rather than a theory. As a theoretical proposition, PT is only brought into equality with MV by a transmission mechanism linking an increase in the stock of M to the flow of expenditure. Thus, in what Fisher called ‘transition periods’, the right-hand side of the equation is not equal to the left-hand side, and indeed it is this possibility of an inequality between them that allows us to speak of a quantity theory of money.

Despite the fact that The Purchasing Power of Money contains virtually no errors either of omission or commission, and despite Fisher's pioneering efforts to quantify the parameters of the equation of exchange, the balance of argument in the book was such as to suggest an intransigent defence of the quantity theory of money, minimizing the weight of transition periods to the point where they practically disappeared from view. The book failed altogether in resolving the controversy over what is meant by the quantity theory of money and even modern monetarists found it necessary to start all over again in defining the problem of just how an increase in the supply of money affects prices.

His other great book is The Theory of Interest (1930). It made no claim to say anything new but its greatness lies in its outstanding pedagogic qualities. It argued, verbally, graphically, and mathematically, that the real rate of interest is determined by both demand and supply; that is, by the demand for production and consumption loans on the one hand and the supply of savings on the other.

Fisher was born in New York and took his BA in mathematics at Yale University in 1888, followed by a PhD in economics in 1901. For three years he taught mathematics at Yale, switching to the economics department in 1895 after establishing an international reputation with his startlingly original PhD thesis, Mathematical Investigations in the Theory of Value and Prices (1892), which contained, among other things, the design of a machine to illustrate general equilibrium in a multi-market economy. He remained at Yale until his retirement in 1935.

He was a director of Remington Rand (now the Rand Corporation), a founder and president of the Eugenics Research Association, the Stable Money League, the Econometric Society, the American Statistical Association, and dozens of other companies and agencies.

His publications include The Nature of Capital and Income (1906), Elementary Principles of Economics (1912), The Making of Index Numbers (1922), The Money Illusion (1928), Booms and Depressions (1932), and 100% Money (1935).

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Irving Fisher Essays

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