------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (May 2009)

Robert W. Dimand and John Geanakoplos, editors, _Celebrating Irving Fisher: The Legacy of a Great Economist_.  Malden, MA: Blackwell Publishing, 2005. xv + 456 pp. $40 (cloth), ISBN: 1-4051-3307-4.

Reviewed for EH.NET by Franck Jovanovic, Department of Labour, Economics and Management, TELUQ-UQAM (Université du Québec à Montréal).


Irving Fisher is undeniably one of the economists who have most influenced the discipline, because, among other things, he counts among the first to have introduced mathematical economics and modern economic theory to the United States.  While his excessive optimism during the 1929 stock market crash damaged his reputation as an economist, his contributions to economics covered many areas of the discipline and are still widely influential.

The major challenge of this book, edited by Robert Dimand and John Geanakoplos, therefore is to lead contemporary economists who are not historians of economic thought in a discussion of Fisher’s contributions and the themes he analyzed.  The book rises to and meets its challenge.  This tour de force highlights the fact that Fisher’s work continues to influence current research in economics and, as James Tobin emphasizes, “Fisher is cited for substance rather than for history of thought” (p. 20).  However, while this book focuses on Irving Fisher, it is important to specify that it is not strictly speaking a work of history of economic thought, but a work of economic analysis on contemporary themes that Fisher analyzed several decades ago.

The book is a new edition of a special issue published in 2005 in the _American Journal of Economics and Sociology_ (Vol. 64, No. 1), which collected revised versions of papers presented at a symposium at Yale in May 1998 to commemorate the fiftieth anniversary of the death of Irving Fisher.  In addition, some of these articles had previously been published, such as the three Tobin contributions or the introductory chapter which is an adaptation of Dimand (1997).  By way of a dozen themes, this book presents the main contributions of Irving Fisher to the discipline of economics.  Each topic is treated in one article and then commented upon by one or several other contributions, totaling twenty-seven contributions.

James Tobin and William Barber each wrote one of the two biographical articles on Fisher.  They place the work of Fisher back into the institutional landscape of his time and back into the history of economics.  One of their focuses is the importance of mathematical economics and of the empirical in Fisher’s work.  It is his interest in mathematics that led Fisher to break with the practices of economists of his time who were influenced by political economy.  In addition to these two contributions, the foreword by George Fisher, a grandson of Irving Fisher, the introductory chapter by Dimand and Geanakoplos and two chapters by James Tobin about two publications by Fisher, _Elementary Principles of Economics_ and _The Nature of Capital and Income_, constitute the chapters whose content is most informative for a reader interested in economic thought.

William Brainard and Herbert Scarf analyze how Fisher studied a general equilibrium model in his thesis, defended in 1891.  They use Matlab software to simulate and, consequently, test the hydraulic model (with pumps and levers) developed by Fisher; they also go beyond the analysis of Fisher by simulating the dynamics of such an equilibrium.

Robert Hall examines, in his contribution, Fisher’s proposal to stabilize the price level in an economy.  He suggests that Fisher’s work is particularly relevant for countries that have no central bank, such as Chile in the second part of the twentieth century; a suggestion that James Tobin denies in his commentary on this article.

Peter Phillips focuses on two major issues for which Fisher remains known today: the question of the real rate of interest and on what nowadays is called the Fisher effect (i.e., the real interest rate is independent of the nominal interest rate).  Phillips tries in particular to overcome the lack of consensus about the time series of the real rate of interest by supposing that they are not stationary and by proposing a semi-parametric model.  However, as noted by John Rust in his commentary, like Phillips’ contribution, the literature that attempts to test the validity of the Fisher equation “has employed increasingly sophisticated econometric methods to test an equation that even Fisher admitted had dubious validity” (p. 175).

Robert Dimand comes back to the concept of Corridor of Stability.  This concept, which was originally introduced by Leijonhufvud in 1973, states that an economy will adjust itself only if the shocks of demand are sufficiently small.  Dimand suggests that this concept already existed in the work of Tobin, Keynes and Fisher.  This article, based on the “debt-deflation” theory, proposed by Fisher in 1933 to explain the importance of the crisis of the 1930s, stresses that, by separating the major shocks from the small shocks, models based on the concept of corridor of stability could explain why the adjustment mechanisms of conventional macroeconomic models are often invalid, especially during severe recessions.

The contribution of Shoven and Whalley on tax policies is based on Fisher’s book _Constructive Income Taxation_, published in 1942.  Among all contributions to this book, this article provides the best actualization of Fisher’s work.  It suggests that Fisher’s idea to replace a tax on income alone with a consumption tax (spendings tax), a progressive tax on income less savings, was particularly innovative for its time.  This situation could explain the relatively small influence of Fisher’s book.

In his article, John Geanakoplos examines the theory of impatience that allows Fisher to determine the interest rate in a model of an economy with a finite number of periods.  This article shows that in some overlapping generations models (OLG) the interest rate at steady state depends on impatience.  Thus, it goes beyond an apparent contradiction between the results of OLG by “proving that in stationary OLG economies with land, the interest rate at the unique steady state does depend on impatience” (p. 257).

Erwin Diewert suggests the rehabilitation of the work of Bennet and Montgomery, two authors who are contemporaries to Fisher.  They developed a theory of index numbers, which is another question for which economists and statisticians still recognize Fisher’s contributions today.  By this way, this article aims to offer an alternative approach to that proposed by Fisher.

The last two articles deal with considerations on the health of populations.  William Nordhaus suggests that the measurement of economic welfare might be improved by including the evolution of the health of populations.  In a commentary paper to Nordhaus, Robert Dimand makes links between this article and Fisher’s work.  Victor Fuchs uses some recommendations and positions taken by Fisher during his life to extrapolate on how he might have assessed the evolution of health public policies taking place in the United States during the twentieth century.

This book could interest readers familiar with Fisher’s work who want to discover the current economic work on topics studied by Fisher, topics that are still central in economics.  Readers who are not familiar with Fisher’s work will be probably more confused because, as such, there is no presentation of Fisher’s work.  In fact, the contributions update and test some models, assumptions or findings by this economist.  It is regrettable that the book, whose title suggests that it is dedicated to the work of Irving Fisher, neither offers an exhaustive presentation of the work of the author nor an analysis of his contributions.   Moreover, some contributions of this book only hold a tenuous link with the work of Fisher: they seize questions that Fisher dealt with, but they do not make any direct link with the writings of Fisher.  Similarly, it is unclear if the notations are those of Fisher or those of the authors; therefore it is not always possible to separate the work of interpretation done in this book from the work of Fisher himself.

References:

R. Dimand, 1997. “Irving Fisher and Modern Macroeconomics,” _American Economic Review_, 87: 442–444.

A. Leijonhufvud, (1973) 1981. _Information and Coordination: Essays in Macroeconomic Theory_, New York: Oxford University Press.

J. Tobin, 1987. “Irving Fisher,” in J. Eatwell, M. Milgate and P. Newman, editors, _The New Palgrave: A Dictionary of Economics_, vol. 2: 369–76.


Franck Jovanovic is Professor of economics at TELUQ-UQAM (Université du Québec a Montréal).  He is working on the history of financial economics.  His recent publications include the edition of a special issue of _Revue d’Histoire des Sciences Humaines_ on the history of financial economics; “The Construction of the Canonical History of Financial Economics,” published in _History of Political Economy_ (40. 3: 213-42); and _Pioneers of Financial Economics: Twentieth-Century Contributions_, volume 2, edited with Geoffrey Poitras, Cheltenham: Edward Elgar.

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