Irving Fisher

See also: Fisher

Irving Fisher , born with Saugerties (State of New York) the February 27th 1867 and died in New York the April 29th 1947, is a American economist known for its work on interest rates and the Théorie of the capital. In this last field, it includes and develops the theories of Böhm-Bawerk in their giving a mathematical formulation.

It shows in particular how the mechanism of Déflation by the debt which functioned during the Années 1930 worsened the depression: after the financial crisis of 1929, the agents (undertaken and households) which are strongly found involved in debt sell their financial credits to try to refund their debts. But these massive sales cause a drop in the prices, which increases finally the actual value of the debt and thus requires new sales of credits: “For each refunded dollar, the agents increase by as much the amount of their debt. ”

One owes him also celebrates it equation from which it establishes a causality between the variations of the quantity of currency in circulation and the variations of the general level of the prices:

MV = PT (With M = stock of currency in circulation, P = price level, V = speed of circulation of the currency and T = volume of the transactions).

One thus translates MV = flow of currency spent, and Pt = face value of the payments (transactions).

Assumptions:

full employment of the factors of production, therefore T fixed;
stable practices of payments, therefore V fixed;
T independent of Mr.

One can thus write: P = (V/T) Mr. However (V/T) constant thus P and M are proportional and > 0. Thus: ΔP = (V/T) ΔM (Δ represents the variation), ΔP and ΔM are proportional.

In a brief way, one can translate this equation like the fact that any variation of the quantity of currency in circulation in economy ΔM implies a proportionate change of the general level of prices ΔP. Example: if the Monetary authorities decide to increase the money supply of 5%, then the prices will increase automatically by 5%. To note that this equation is really general and minimalist: very many factors must be taken into account to explain inflation and the manner of countering it.

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