Hundreds of individuals have impacted economics throughout its vast history. Only a handful of these individuals are household names recognized with economics today. However, many lessor known economists have made lasting impressions, often making attributions to the theories we know today. One of these individuals who influenced economics in this way was Irving Fisher.
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. His study of mathematics played a crucial role in how his theories evolved. Almost all of his work involves mathematical computations to express the theories he devised. Fisher’s theories were revolutionary in the time period as a result, but his theories and legacy was tarnished due to one public statement in his career. He publicly announced right before the stock market crash of 1929 that the stock market had reached a “permanent plateau” and improvements were imminent. However, we know this never happened and he paid for it in both his career and his financial situation. It wasn’t until years later that people began to look back and realize Irving Fisher still had innovative theories and ideas.
One of these theories that Fisher gave to the world of economics was his theory of interest. His contributions first appeared in The Nature of Capital and Income (1906), next The Rate of Interest (1907) and later the revised version The Theory of Interest (1930). These works drew upon two prior individuals, John Rae and Eugen von Bohm-Bawerk, in developing them. Fisher believed the works of Rae and Bawerk didn’t provide a complete explanation of how the rate of interest is determined. Therefore, Fisher expanded and clarified what both of these economists tried to do. Fisher did this by introducing his two period diagram which showed how interest rates were determined....
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