Professor Fisher and the Quantity Theory - A Significant Encounter
AbstractIrving Fisher's encounter with the Quantity theory of Money began in the 1890s, during the debate about bimetallism, and reached its high point in 1911 with the publication of The Purchasing Power of Money. His most important refinement of the theory, derived from his recognition of bank deposits as means of exchange, was to treat their out of equilibrium recursive interaction with inflation as integral to it. This treatment underlay both his 1920s work on the business cycle as a "dance of the dollar" and his advocacy of subjecting monetary policy to a legislated price stability rule, initially to be based on his "compensated dollar" scheme. Fisher's failure to recognize the onset of the Great Depression even as it was happening was directly related to his faith in the quantity theory's seeming implication that price level stability in and of itself guaranteed the continuation of prosperity, while his subsequent work on the debt deflation theory of great depressions initially failed to repair the damage that this failure did to his reputation, and to that of the quantity theory. In the 1930s Fisher nevertheless remained an active supporter of various schemes to reflate and then stabilize the price level. His subsequent influence on the quantity theory based Monetarist counter-revolution that began in the 1950s lay, directly, in its deployment of his analysis of expected inflation on nominal interest rates, and, indirectly, in its espousal of the case for subjecting monetary policy to a legislated rule.
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Bibliographic InfoPaper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20111.
Date of creation: 2011
Date of revision:
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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html
Quantity theory; Price level; Inflation; Deflation; Business cycle; Depression; Money; Interest; Fisher effect;
Other versions of this item:
- David Laidler, 2013. "Professor Fisher and the quantity theory�--�a significant encounter," European Journal of the History of Economic Thought, Taylor and Francis Journals, vol. 20(2), pages 174-205, April.
- B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
- B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
- B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-21 (All new papers)
- NEP-CBA-2011-11-21 (Central Banking)
- NEP-HIS-2011-11-21 (Business, Economic & Financial History)
- NEP-HPE-2011-11-21 (History & Philosophy of Economics)
- NEP-MAC-2011-11-21 (Macroeconomics)
- NEP-MON-2011-11-21 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Patinkin, Don, 1969. "The Chicago Tradition, the Quantity Theory, and Friedman," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 46-70, February.
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