Saturday, February 27, 2010

Happy Birthday Irving

Given the title of this blog, I would be remiss in not recognizing the anniversary of Irving Fisher's birth. Irving Fisher was an economist in the early part of the 20th century, one of the preeminent economists of his day.

He is perhaps most famous for thre things: first the equation M x V = P x T (or sometimes P x Y or P x Q, as in the title of this blog). This equation basically related the money supply to the price level and became the basis for monetary economics.

The second thing he is famous for is, to say the least, unfortunate. In the days before the stock market crash of 1929, he was quoted as saying the market had reached a permanent plateau. He would lose much in the ensuing crash.

The third thing he did, he is often not connected with. Those of us of a certain age can remember a card filing system called a Rolodex. Fisher was the inventor.

You can find interesting biographies of Irving Fisher here and here. I also recommend Irving Fisher: A Biography. I'm adding it to my carousel at left.

Feel free to comment.


Mike Sproul said...

MV=PT, besides being wrong, was discussed in 1880 or so by a guy named Lubbock, way before Fisher. You left out Fisher's best contribution, which was his theory of interest.

Mike Sproul said...

Fisher's best idea was his theory of interest. His worst idea was MV=PT.

Tim Schilling said...

Hi Mike,

Thanks for your comments. His theory of interest was also very valuable.

I'll stick with MV=PT. In my opinion, the value of the insight lies in the fact that it connects the monetar side to the real side in a very significant way.

I'm not a monetarist, but I have found the insight helpful on many occasions. Once again, thanks for your comments.

Tim Schilling said...

I should also point out, I'll have to investigate your page on "Real Bills Doctrine." I've also found that idea very interesting, although I ad mit I've not had sufficient time to investigate it. Once again, thanks for commenting.

Mike Sproul said...

Hi Tim:

The real bills doctrine is well worth your time. An easy way to think of it is to imagine a bank that holds 100 oz. of silver as backing for 100 currency units ('dollars'). If that bank then issued another $200 in exchange for another 200 oz. of silver, then the RBD says that the extra $200 would not cause inflation, since it was adequately backed by the extra 200 oz. It's clear that 'MV=PT' has nothing to do with the value of these dollars.

A little thought should convince you that the bank could just as well have issued the extra $200 for assets WORTH 200 oz, rather than 200 physical ounces. A little more thought might convince you that this remains true even when the dollar is not physically convertible into silver.