Irving Fisher was probably America's greatest--and certainly most original--economist. His writings on index numbers, the theory of interest, monetary theory, the debt-deflation theory of depressions, etc. earn him a high place in the history of economic thought.
However, as one might expect from a Truly Original American Genius, he was also one of the greatest cranks of all time. His reform impulses embraced a staggeringly large number of fields:
(1) Most notably, he was one of America's staunchest Prohibitionists. He wrote book after book devoted to this syllogism: (a) People were more productive when they didn't drink, even moderately. (b) Prohibtion, however imperfretly enforced, did reduce drinking. (c) Therefore Prohibtion must have increased productivity. He backed this argument up with a truly startling variety of statistics:
"'In an attempt to memorize poetry,' Irving Fisher wrote in 1926, 'Professor Vogt of the University of Christiana found that on days when he drank one and one-half to three glasses of beer it took him 18 per cent longer to learn the lines.' To an extreme dry like Fisher-–which is to say, to an extreme dry who also happened to be one of America’s foremost economists-–this was a 'fact' to fall in love with. Fisher wasn’t going to miss the chance to attribute the strength of the U.S. economy to computations made by Professor Vogt during his attempt to master the Odyssey, in Norwegian, while a little bit in the tank. He had made a similar calculation in 1919, when he extrapolated from a study showing, he said, that 'two to four glasses of beer will reduce the output of typesetters by 8 per cent.' From this he determined that withholding those beers from those typesetters, and from everyone else in the American labor force, 'will add to the national output of the U.S. between 7 [and] 1/2 to 15 billion dollars’ worth of product, every year.'
"Fisher seemed to find evidence for the wonders of Prohibition behind every statistic he encountered–-for instance, the discovery, in 1924, that arrests in New York City for the use of 'foul language' had dropped 20 percent since pre-Volstead levels. He was not inclined to consider other causes-–like, possibly, a wider acceptance of profanity in the Jazz Age city–-when he could grab a number and pronounce it evidence. When Fisher determined that a single drink reduced efficiency by 2 percent, he said that this translated to more than a billion dollars of GNP..."
https://www.econlib.org/archives/2014/08/great_moments_i_9.html
(2) His interest in the Drink Problem was related to his interest in nutrition and healthy lifestyle in general:
"By 1895 he had switched out of mathematics and into economics. By 1898 he had become a full professor, and then he fell ill with tuberculosis. In a remarkable recovery based on good advice, luck, and extraordinary will power, he worked his way successfully out of a three-year bout with this terrible illness. The experience turned him into a lifelong campaigner for good health habits. He returned to the Yale faculty in 1903.
"Fisher didn't smoke, and he drank no alcoholic beverages, coffee, or tea. He didn't eat chocolate or pepper. He ate salad for breakfast. (So do I.) He was almost a vegetarian. For a while, he thought that a diet of bananas and peanuts contained all the ingredients necessary for life, and he estimated that a person could live on this diet for $35 a year. Whether he considered this a practical suggestion is doubtful; in any case, it was surely an anticipation of the kind of problem that would become standard in courses in linear programming: Find the minimum-cost diet that includes all the necessary dietary elements and excludes those that are counterindicated. In many different ways, Fisher's ideas were in advance of their time..."
https://cs.nyu.edu/davise/personal/PJDBib/Fisher.html
(3) "When his daughter Margaret was diagnosed with schizophrenia, Fisher had her treated at the New Jersey State Hospital at Trenton, whose director was the psychiatrist Henry Cotton. Cotton believed in a 'focal sepsis' theory, according to which mental illness resulted from infectious material in the roots of teeth, bowel recesses, and other places in the body. Cotton also claimed that surgical removal of the infected tissue could alleviate the patient's mental disorder. At Trenton, Margaret Fisher had sections of her bowel and colon removed, which eventually resulted in her death. Irving Fisher nonetheless remained convinced of the validity of Dr. Cotton's treatment..."
https://en.wikipedia.org/wiki/Irving_Fisher
(4) It is rather predictable that Fisher was a staunch champion of eugenics (in all fairness, this was a widespread position embraced by many respectable people in America before Hitler): "Fisher's virulent positions on such themes as 'race degeneration', the necessity of sterilization measures for certain categories of the American population, and his urgent call for the control of the genetic quality of new immigrants are hardly consistent with the opalescent subtlety of academic disputes over the nature of capital and interest. Although Fisher repeats it often: in his work, this question of the nature of capital and interest is directly linked to eugenic assumptions and analysis. This second body of Fisherian work illuminates the strong epistemological and theoretical references in Fisher's work as an economist. This paper addresses this question through three major themes: the constant denunciation of a 'racial decay' of the American population and its corollary: the project of setting up a 'scientific humaniculture'; the plea against the eugenic effects of World War I, and the then haunting question of the closing of the 'Golden Door'.
https://www.jstor.org/stable/3488160?seq=1#page_scan_tab_contents
(5) More benignly, he was an advocate of the League of Nations, still holding out hope in 1923 that the US would join:
https://archive.org/stream/leagueorwar012566mbp#page/n5
(6) Nor did he neglect calendar reform: "Fisher believed that for accounting purposes there should be thirteen months with twenty-eight days each so that every month was the same length and each date fell on the same day of the week)..."
https://www.cambridge.org/core/jour.../3D567306B510083C440C1BF3729D32AC/core-reader
Anyway, what did most to discredit Fisher for a long time, at least among the general public, was not his reform crusades, but an infamous quote about the stock market: On October 15, 1929, the week before the crash, Fisher opined that stock prices had reached "what looks like a permanently high plateau."
https://news.google.com/newspapers?...oZRAAAAIBAJ&sjid=tiEEAAAAIBAJ&pg=5933,2282724 He did make some slight reservations in the actual address, but in the question-and-answer session that followed, he boldly stated that he expected "to see the stock market a good deal higher than it is today, within a few months." On October 21, there had already been a few bad days on Wall Street, but Fisher stuck to his guns: the market was "only shaking out...the lunatic fringe" and he went on to explain why he felt the prices still had not caught up with their real value and should go much higher. Among other things, he thoght the market had still not fully recognized the extent to which Prohibition had made the American worker more efficient. On October 23, after a further downturn, "Speaking in Washington, even Professor Fisher was fractionally less optimistic. He told a meeting of bankers that 'security values *in most instances* were not inflated.' However, he did not weaken on the unrealized efficiencies of prohibition."
https://archive.org/stream/in.ernet.dli.2015.460814/2015.460814.From-The#page/n175 The all-out panic started the next day, and in early November all Fisher could say was "It was the psychology of panic." "It was mob psychology, and it was not, primarily, that the price level of the market was unsoundly high….the fall in the market was very largely due to the psychology by which it went down because it went down."
https://books.google.com/books?id=YoXZWqBIIE8C&pg=PA146
At the beginning of 1930, Fisher tried to explain why he was wrong in a book called *The Stock Market Crash--and After.* "He argued, and rightly for the moment, that stocks were still on a plateau, albeit a somewhat lower one than before, that the crash was a great accident, that the market had gone up 'principally because of sound, justified expectations of earnings.' He also argued that prohibition was still a strong force for higher business productivity and profits, and concluded that for 'the immediate future, at least, the outlook is bright.'..."
https://books.google.com/books?id=YoXZWqBIIE8C&pg=PA146 (It is typical of Fisher that at the same time he was so badly mistaken about the stock market he gave an important lecture on "The Application of Mathematics to the Social Sciences"
https://projecteuclid.org/DPubS/Rep...w=body&id=pdf_1&handle=euclid.bams/1183493954)
Fisher's judgments in late 1929 and early 1930 were not so bizarre as they may seem in retrospect. It has indeed been argued that he was right in saying that stocks were not overvalued in the autumn of 1929:
https://www.minneapolisfed.org/research/sr/sr294.pdf (To anticipate an objection: Yes, of course stocks were overvalued in 1929 relative to what corporate America would be worth a few years later, in the depths of the Great Depression. But in 1929--even after the Crash--*nobody* anticipated a depression of that depth and length--and indeed I would argue that such a depression was far from inevitable.) Whan Fisher was writing in January 1930, the stock market decline had halted on November 14, and the market indeed was on a plateau, and a fairly high one--just at 1928 rather than 1929 levels. Indeed, "During the first three months of 1930 a Little Bull Market gave a very plausible imitation of the Big Bull Market. Trading became as heavy as in the golden summer of 1929, and the prices of the leading stocks actually regained more than half the ground they had lost during the debacle. For a time it seemed as if perhaps the hopeful prophets at Washington were right and prosperity was coming once more and it would be well to get in on the ground floor and make up those dismal losses of 1929."
http://xroads.virginia.edu/~hyper/allen/ch14.html
Unfortunately, Fisher's investments reflected his beliefs. Believing as he did that November 1929 had marked the low point of the stock market, he invested heavily in stocks--and simply refusing to believe that they would not recover, he held on to them, even after the Little Bull Market went into reverse. His financial position plummeted:
"During the years from 1925 to 1929, Fisher earned a fortune from his invention of a rotary index card file and from his investments and stock market manipulations. From 1929 to 1932, he lost a fortune in the stock market crash. Although the loss affected him psychologically, Irving Fisher--always the optimist--was never one to jump out the window.
"His precrash financial dealings and interpretations got him in trouble with the IRS. (Irving Fisher, Al Capone; does it make any difference to the IRS? Or to a computer?) He went to tax court and lost. By January 1931, the IRS told him to pay up or else. He was lucky that his wealthy sister-in-law (Caroline Hazard, president of Wellesley) was willing to bail him out a bit, although she lost patience with him, and her sisterly-in-law feelings diminished considerably when he kept coming back for more.
"In 1934, after a year of haggling, Yale bought his expensive home and rented it back to him on a life-tenancy basis. Even this arrangement proved too expensive, and Fisher paid Yale in IOUs instead of cash. Naturally, the Yale administration was irritated and began to think of him as a crank and a nuisance instead of the genius that he undoubtedly was. (Yale University is now reprinting his major works.) As Allen says, 'His efforts made him into the country's most well-known and unsuccessful monetary reformer whose poor judgement cost him his fortune, his businesses and his home.'"
https://cs.nyu.edu/davise/personal/PJDBib/Fisher.html
And yet this was not the end of Irving Fisher as an economist. In 1932 he made a serious effort to develop a theory of why depressions--including the one which had cost him his fortune--came about, and what could be done about them. The result was his *Booms and Depressions* (1932).
https://fraser.stlouisfed.org/files/docs/publications/books/booms_fisher.pdf As he noted, "The vast field of "business cycles" is one on which I had scarcely ever entered before, and I had never attempted to analyze it as a whole."
"The debt-deflation theory is laid out as a “chain of consequences in nine links”, shown below in italics (Fisher, 1933: 342): starting from a situation of widespread “overindebtedness”, debtors begin liquidating their debts through distress selling. This settlement of loans causes a contraction of deposit currency, i.e. a fall in the money supply, accompanied by a fall in the “velocity of circulation”; this, in turn, results in deflation, a fall in the price level. In the absence of central bank action to uphold the price level, the net worth of firms falls, causing bankruptcies and a similar decrease in profits. Loss-making companies act rationally by reducing output, trade and employment. These reductions and the aforementioned losses to firms precipitate a loss of confidence, which leads to further slowdown in the velocity of circulation via hoarding. All of the above factors create disturbances in interest rates: nominal rates fall, while real rates rise . Fisher’s suggested solution to break the vicious cycle of debt deflation was to reinflate the price level to the point at which debt contracts had been agreed on originally."
https://www.tcd.ie/Economics/assets/pdf/SER/2013/Emmet_Kiberd.pdf
"This theory was largely ignored in favor of Keynesian economics, in part because of the damage to Fisher's reputation caused by his public optimism about the stock market, just prior to the crash. Debt-deflation has experienced a revival of mainstream interest since the 1980s, and particularly with the Late-2000s recession. Steve Keen predicted the 2008 recession by using Hyman Minsky's further development of Fisher's work on debt-deflation. Debt-deflation is now the major theory with which Fisher's name is associated.[10]"
https://en.wikipedia.org/wiki/Irving_Fisher
(BTW, even in *Booms and Depressions* while recognizing the seriousness of the Great Depression, Fisher in a postcscript adds that maybe the Depression is ending! "As this book goes to press (September, 1932) recovery seems to be in sight. In the course of about two months, stocks have nearly doubled in price and commodities have risen 5%. European stock prices were the first to rise, and European buyers were among the first to make themselves felt in the American market.
"These developments might be due to various causes, including an increase in the volume or velocity of currency, or both. In fact, velocity increased while volume (at first) slightly decreased. This paradox, signalling a rise in prices, is the opposite of the one that signalled the fall. Confidence was aroused, pardy by the virtual cancellation at Lausanne of German Reparations, and partly by our announced preparations for reflation. These un-froze some of the hoards and raised prices; and the increased value of collateral encouraged some debtors, who had been hanging on, to liquidate, thus temporarily reducing the volume of credit currency. But the stage is set for further reflation through such measures as: the recent Glass inflation Act, allowing an increase in bank notes; the Glass Steagall Act, in February, "freeing" gold; the consequent open market operations of the Federal Reserve System on an unprecedented scale; the credit operations of the Reconstruction
Finance Corporation; the Home Loan Banks Act, and other reflationary measures. The banks had achieved "liquidity." Gold, also, has begun to flow back from Europe. If the end of the great depression is really at hand, it will be the result, apparently, of human effort more than a mere pendulum reaction..." As it turned out, the upturn in economic activity for a couple of months from its July 1932 lows turned out to be another false dawn like early 1930 or early 1931. BTW, Hoover always insisted that he had gotten America on the road to recovery by September 1932, and then uncertainty about what FDR would do wrecked it again. But what Hoover thought scared business was that FDR would engage in inflationary policies--whereas to Fisher "reflation" was exactly what was needed...)
Anyway, here's the what-if: suppose the TB Fisher had contracted in 1898 had proved fatal? (The disease had killed his father.) I don't think Fisher's voluminous writings on Prohibition had that much effect. "Drys" cited them, "wets" like Clarence Darrow replied to them, but in the end I don't think they changed many minds or delayed the repeal of Prohibition. (It is after all pretty hard to repeal a constituional amendment!) Prohibition could not be repealed until the Great Depression made repeal an attractive source of desperately needed new revenue and--even more important--jobs. BTW, in the 1920's most economists seem to have agreed with Fisher that Prohibition was good for the economy. "He organized a round-table discussion on the topic at the American Economic Association meetings in 1927. Here he claimed to have been unable to find even one economist to speak against Prohibition, despite a thorough search. 'I got a list of the economists who are supposed to be opposed to Prohibition, and wrote to them; they all replied either that I was mistaken in thinking that they were opposed to Prohibition or that, if we were going to confine the discussion to the economics of Prohibition, they would not care to respond. When I found that I was to have no speaker representing the opposite point of view, I wrote to all American economists listed in "Minerva" and all American teachers of statistics. I have not received from any one an acceptance.'"
https://mises.org/library/prohibition-and-economists
And Fisher's other crusades--from the League of Nations to monetary reform--mostly failed. "He got on fairly well with President Franklin D. Roosevelt on a personal level; he thought of himself as a presidential adviser--after all, he was 'the greatest American economist that America has produced' (Fisher himself would have agreed with these words of Joseph Schumpeter). As it turned out, his batting average with respect to recommendations that were actually accepted by Roosevelt was only so-so."
https://cs.nyu.edu/davise/personal/PJDBib/Fisher.html
Obviously, things are otherwise with respect to his theoretical contributions to economics. James Tobin writes that "Fisher is widely regarded as the greatest economist America has produced" and that "Much of standard neoclassical theory today is Fisherian in origin, style, spirit and substance. In particular, most modern models of capital and interest are essentially variations on Fisher's theme, the conjunction of intertemporal choices and opportunities. Likewise, his theory of money and prices is the foundation for much contemporary monetary economics."
https://books.google.com/books?id=BIWEt8hRH2kC&pg=PA699
What I don't have is enough knowledge of the history of economics to say with any assurance to what extent Fisher's most important economic theories were "in the air," would have been propounded by others, if he had not lived, etc. (At least some of his theoretical work depended on his deep knowledge of mathematics--a knowledge that was by no means prevalent among economists of his generation.)