He studied at Yale with the eminent mathematician J. Willard Gibbs but was drawn toward economics under the influence of William Graham Sumner. As Fisher himself reported, he was fascinated by Sumner.
Fisher's formulation [ edit ] In Fisher's formulation of debt deflationwhen the debt bubble bursts the following sequence of events occurs: Assuming, accordingly, that, at some point in time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both.
Then we may deduce the following chain of consequences in nine links: Debt liquidation leads to distress selling and to Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation.
This contraction of deposits and of their velocity, precipitated by distress selling, causes A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be A still greater fall in the net worths of business, precipitating bankruptcies and A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make A reduction in output, in trade and in employment of labor.
These losses, bankruptcies and unemployment, lead to pessimism and loss of confidence, which in turn lead to Hoarding and slowing down still more the velocity of circulation. The above eight changes cause Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.
In order to apply this to financial markets, which involve transactions across time in the form of debt — receiving money now in exchange for something in future — he made two further assumptions: B The debts must be paid.
Fisherp. It is as absurd to assume that, for any long period of time, the variables in the economic organization, or any part of them, will "stay put," in perfect equilibrium, as to assume that the Atlantic Ocean can ever be without a wave.
I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.
Other debt deflation theories do not assume that debts must be paid, noting the role that default, bankruptcy, and foreclosure play in modern economies. James Tobin cited Fisher as instrumental in his theory of economic instability. Debt-deflation theory has been studied since the s but was largely ignored by neoclassical economists, and has only recently begun to gain popular interest, although it remains somewhat at the fringe in U.
Fisher's idea was less influential in academic circles, though, because of the counterargument that debt-deflation represented no more than a redistribution from one group debtors to another creditors.
Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macroeconomic effects. Building on both the monetary hypothesis of Milton Friedman and Anna Schwartz as well as the debt deflation hypothesis of Irving Fisher, Bernanke developed an alternative way in which the financial crisis affected output.
He builds on Fisher's argument that dramatic declines in the price level and nominal incomes lead to increasing real debt burdens, which in turn leads to debtor insolvency, thus leading to lowered aggregate demand and further decline in the price level, which develops into a debt deflation spiral.
According to Bernanke a small decline in the price level simply reallocates wealth from debtors to creditors without doing damage to the economy. But when the deflation is severe, falling asset prices along with debtor bankruptcies lead to a decline in the nominal value of assets on bank balance sheets.
Banks will react by tightening their credit conditions. That in turn leads to a credit crunch that does serious harm to the economy.Irving Fisher - His Life Fisher was born in New York state in He studied science and philosophy at Yale.
Here he had a wide variety of interests. For example, he published poetry and works on astronomy, mechanics, and geometry. Fred was born Sept. 4, in Atlanta, GA, to Fred Harold Pilgrim, Sr., & Glenna Mae Smithwick Pilgrim.
He was a graduate of Glynn Academy, and earned an Industrial Management Degree at Southern Tech, he attended John Marshall Law School where he received his Doctor of Jurisprudence. Y ou might not know this, you might not believe it but once upon a time, the Golden State Warriors won the NBA championship..
The big day happened in the spring of , well before things like cable TV, DirecTV, computers, video games, iPads, iPods, CDs, DVDs, Blu-rays, e-mails and the Internet. Fisher's formulation () In Fisher's formulation of debt deflation, when the debt bubble bursts the following sequence of events occurs.
Assuming, accordingly, that, at some point in time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the .
Irving Fisher was a very unique and brilliant man. He attended Yale University where he studied mathematics. He later used this background and applied it to economics, earning a PhD in economics, the first from Yale University.
Celebrating Irving Fisher comprises, Whether your interest is the history of ideas or Fisher’s analytical contributions, Celebrating Irving Fisher is a wonderful place to begin to understand why Fisher continues to be widely regarded as .