As it turns out for my first post I am going to highlight the writings of Irving Fisher “The Purchasing Power of Money” published in 1911 - the year my father was born. This one is for you Reinhold.
Robert J Shiller recently published a short paper discussing Fisher’s work titled ‘Irving Fisher, Debt Deflation and Crises’ http://cowles.econ.yale.edu/P/cd/d18a/d1817.pdf (hat tip:Professor Serletis)
Shiller’s behavioural ideas about contracting in terms of baskets rather that individual currencies are interesting but I am struck by how much the Fisher quotes still ring true today. Consider them in the context of the credit binge, the popping of the housing bubble and where investor psychology is today.
“The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.”
Fisher also talks about the aftermath of a debt bubble and the problem a society has extracting itself from the consequences that follow.
“Each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, the liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast, as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed.”
Robert J Shiller recently published a short paper discussing Fisher’s work titled ‘Irving Fisher, Debt Deflation and Crises’ http://cowles.econ.yale.edu/P/cd/d18a/d1817.pdf (hat tip:Professor Serletis)
Shiller’s behavioural ideas about contracting in terms of baskets rather that individual currencies are interesting but I am struck by how much the Fisher quotes still ring true today. Consider them in the context of the credit binge, the popping of the housing bubble and where investor psychology is today.
“The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.”
Fisher also talks about the aftermath of a debt bubble and the problem a society has extracting itself from the consequences that follow.
“Each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes. In that case, the liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast, as it increases the value of each dollar owed. Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed.”
RSS Feed
