Robert W. Dimand

Fisher and Veblen: Two Paths for American Economics

In the early years of the twentieth century, two outspoken and brilliant American economists, Thorstein Veblen and Irving Fisher, offered sharply-contrasting visions of how the discipline of economics should be transformed. Each taught at a leading university and had added prominence as a journal editor, but pursued economic inquiry in ways alien to senior colleagues at his university and in the profession at large. Despite the gulf separating their approaches to economics, they had been doctoral students of the same mentor, William Graham Sumner of Yale, and had each been deeply influenced by Sumner. This paper uses the exchange on neoclassical capital theory between Veblen and Fisher in the Political Science Quarterly in 1908 and 1909 to illuminate their approaches to economics and to question why the American economics profession came to follow Fishers path–even though Veblen, unlike Fisher, attracted devoted disciples and was considered in American social thought (excepting academic economists) as the standard-bearer of “the New Economics.†Despite Veblens antipathy to those aspects of Fishers work that became dominant in mainstream economics, there was a close affinity between Veblens Theory of Business Enterprise (1904) and Fishers debt-deflation theory of depressions, which remained (until very recently) outside the mainstream and has been taken up by such heterodox economists as Hyman Minsky.

Cournot, Bertrand, and game theory: A further note

This note synthesizes the discussion on the role of Cournot and Bertrand in the analysis of duopoly by drawing on the history of the debate. We conclude that while Bertrand presented a critique of the mathematical economics of Cournot and stimulated the analysis of strategic choice in game theory, he did not present a duopoly model with price as a strategic variable, as opposed to Cournots model with quantity. In fact, Cournot has both types of models. We show that Irving Fisher contributed to the myth about Bertrands duopoly theory.

Irving Fisher and Financial Economics: The Equity Premium Puzzle, the Predictability of Stock Prices, and Intertemporal Allocation Under Risk

Irving Fisher is renowned as the pundit who declared in October 1929 that stock prices appeared to have reached a permanently high plateau and who, having amassed a net worth of ten million dollars in the boom of the 1920s, proceeded to lose eleven million dollars of that fortune in the crash, which, as John Kenneth Galbraith (1977, p. 192) remarked, “was a substantial sum, even for an economics professor.†Along with the Dow-Jones index, Fishers reputation for understanding financial markets declined relative to that of Roger Babson, the stock forecaster, amateur economist, and founder of Babson College, who presciently predicted the stock market crash of autumn 1929 (and, with less prescience, the stock market crashes of 1926, 1927, and 1928, and the stock market recovery of 1930). An editorial in The Commercial and Financial Chronicle (November 9, 1929) declared of Fisher: “The learned professor is wrong as he usually is when he talks about the stock market†(quoted by Galbraith 1972, p. 151).

Hawtrey and the Keynesian Multiplier: A Response to Ahiakpor

I am not persuaded by James Ahiakpor’s denial (this issue) that Ralph Hawtrey was a pioneer in using a geometric series to derive a finitevalued spending multiplier. Hawtrey’s 1928 Treasury memorandum (quoted by Davis 1983, appendix) worked out a numerical example of the change in equilibrium income resulting from the imposition of taxation to pay reparations, with a leakage into imports from successive rounds of spending. His December 1930 Macmillan Committee working paper presented a numerical example of the multiplier, with leakage into saving (in Keynes 1971–89, vol. 13; cf. Davis 1980), while in The Art of Central Banking (1932) Hawtrey replaced his numerical example with an algebraic analysis. This derivation of a finite-valued multiplier stands as an analytical contribution, regardless of Hawtrey’s acceptance of Kahn’s priority in publication (compare with the opening sentence of Ahiakpor’s conclusion) or of Hawtrey’s support for stabilization by means of monetary policy rather than fiscal policy. As I pointed out in my 1997 article, understanding the comparative-static multiplier (understanding the IS goods-market equilibrium condition, to use terminology from later in the 1930s) does not imply belief in the effectiveness of fiscal policy in changing aggregate demand, since that also depends on the LM money-market equilibrium condition. As I noted, Hawtrey later identified liquidity preference as Keynes’s key innovation, that is,

Monetary Economics, History of

As with so much else in the Western tradition, theorizing about the role of money can be traced back to Plato and Aristotle in the fourth century bce, although they may have drawn on pre-Socratic philosophers whose works survive, if at all, only in fragments. In his Republic (1974), Plato remarked that money was a symbol devised to make exchange easier. He disapproved of gold and silver as money, preferring a currency that would have value only internally, not in external commerce. The analysis in Aristotle’s Nicomachean Ethics (1996) and Politics (1984) of what constitutes just exchange led Aristotle to a more systematic discussion of a medium of exchange. His account of the functions of money, and of the properties that suit a commodity such as gold or silver to be the medium of exchange, as well as his use of the myth of Midas to distinguish between gold and wealth, influenced comparable presentations by Nicolas Oresme in about 1360 (Oresme, de Sassoferrato and Buridan, 1989), Adam Smith (1776), and, through Smith, any number of 19th-century textbooks (see Menger, 1892; Monroe, 1923). Barter might be the most basic form of exchange, but it involves accepting goods one does not wish to consume in order to make a further exchange for what is desired. Aristotle noted the convenience of a generally accepted medium of exchange in reducing the number of transactions required. He saw the convenience of stating prices in terms of the medium of exchange, and that, if a commodity is to serve as a medium of exchange, it must also be a store of value, retaining purchasing power between being received and being spent (but he did not mention the function of money as a standard of deferred payment).

David Hume and Irving Fisher on the quantity theory of money in the long run and the short run.

Abstract David Humes classic statement of the quantity theory of money and the specie-flow mechanism of international adjustment in 1752 and Irving Fishers authoritative restatement of the quantity theory in 1911 shared a concern with simultaneously upholding both the long-run neutrality and the short-run non-neutrality of money. This paper compares their approaches to attempting this reconciliation of the long run and short run, noting their shared emphasis on ‘illusion’ as the basis of short-run non-neutrality, and places their contributions in historical context. I argue that Hume and Fisher shared the same view of how automatic adjustment of the balance of payments worked under the gold standard, with Fishers monetary reform proposals being an attempt to prevent the working of Humes automatic adjustment mechanism.

A Simpler Proof of the Von Neumann Minimax Theorem

Abstract This note provides an elementary and simpler proof of the Nikaidô-Sion version of the von Neumann minimax theorem accessible to undergraduate students. The key ingredient is an alternative for quasiconvex/concave functions based on the separation of closed convex sets in finite dimension, a result discussed in a first course in optimization or game theory.

Patinkin on Irving Fisher's monetary economics

This paper examines Patinkins analysis of Fishers monetary economics, with regard to the integration of monetary and value theory, the origins of the Chicago school and Fishers relationship to Cambridge monetary theory.

James Tobin and Growth Theory: Financial Factors and Long-Run Growth

Although Tobin 1955 was one of the founding papers of the neoclassical one-sector growth model with smooth substitution between capital and labor, James Tobins contributions to long-run growth theory throughout his career stood apart from other neoclassical growth models because of his emphasis on portfolio substitution between money and capital as a possible source of the non-neutrality of money even in the long run. This paper examines Tobins contributions to growth theory over more than four decades and the relationship of his work to the evolution of modern growth economics.

Edmund Phelps and Modern Macroeconomics

Abstract Edmund Phelps, winner of the 2006 Nobel Prize in Economics, has been a central figure in the development of macroeconomics since his 1961 article ‘The Golden Rule of Accumulation’ on optimal economic growth. His 1967–68 critique of the stability of the Phillips curve trade-off, together with Friedman (1968), led to the expectations-augmented Phillips curve and the natural rate hypothesis. His work on the choice-theoretic microeconomic foundations of wage, price, and employment dynamics under imperfect information, changed how economists do macroeconomics. Phelps subsequently developed natural rate models in a non-monetary, structuralist direction distinct from Friedmans monetarism and from New Classical economics, analyzing the natural rate of unemployment as a function of the real structure of the economy: real sectoral demands, factor supplies, technology, taxes, subsidies, tariffs, and real interest and exchange rates.