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Economists - Essay Example

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Economists-Irving Fisher Institution Affiliation: Outline 1. Introduction 2. Significance of Irving Fisher’s Debt-deflation Theory a. Factors Led to the Great Depression i. Causes of Debt ii. Psychology of Debt b. Stages of Financial Crises and Solutions 3…
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Economists
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Economists

Download file to see previous pages... Fisher was born in 1876 and received his Business Administration degree and Ph. D in Yale University. As the professor of economics and mathematics at Yale University, Irving Fisher developed extensive concepts concerning money supply and price fluctuations using mathematical evidence (Allen, 1977). Fisher was among the most accurate and leading economists of the 20th century. He used his acquired knowledge and skills from Yale to observe and analyze dramatic and complex macroeconomic events during his era. Fisher also proposed appropriate solutions to the Great Depression that crippled the U.S economy and other aspects of life. The crash of the stock market in the U.S in 1929 and consequential falling of stocks and goods’ prices prompted Fisher to revise his economic theories on price fluctuations, debt and the depression caused by these factors (Mendoza, 2009). Fisher formulated a debt-deflation theory and named the financial crisis, the Great Depression, which is currently used to relate to the economic recession in the U.S.The debt-deflation theory indicates that consumers borrow money for investment on speculation and imagine profits, which leads to losses, debt, deflation and pessimism. Thesis Statement: Irving Fisher has a significance impact on the prevailing U.S economy through his debt-deflation theory, which examines the causes of debt, the deflation and the solutions of the subsequent financial crisis in relation to the current U.S economic instability. Significance of Irving Fisher’s Debt-deflation Theory Irving Fisher’s debt-deflation theory was essential in the Great Depression era and in current U.S economic crisis because it clearly explains the factors that cause the debt and the resultant ripple effect on the economy. The U.S economy is essential in the global market because it is the largest trading partner in the world, which means its financial crisis affects all other foreign economies. The following are causes of debt, stages of the financial crisis and proposed solutions as described and examined by Irving Fisher. a. Factors Led to the Great Depression i. Immediate Causes of Debt During the Great Depression, the two chief causes of debt for U.S citizens were over-investment, over-speculation and over-confidence (Fisher, 1933). Citizens, private sectors and the government borrowed money from banks, the federal government and other private financial lending institutions to conduct investments that they believed would result to higher returns and revenues. Many organizations and citizens wanted to invest borrowed money on new business ideas and receive abundant profits within a short time as compared to the ordinary investments that have moderate profits and interests. New inventions included building industries, railway lines, develop new resources, open real estates and new markets (Fisher, 1933). Financial lenders provided easy money, which led to over-borrowing. Most investors believe through speculation and over-confidence that they can borrow money at 6% and make profits of over 100% (Fisher, 1933). New industrial inventions and technology innovations prompted over-borrowing with the confidence of making a huge profit within a short period. Lucrative investment opportunities allowed people and organizations to have big debts. Major wars that the U.S initiated and ...Download file to see next pagesRead More
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