Irving Fisher, the First Celebrity Finance Professor

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When speculative bubbles form, as they did in the 1920s and the late 1990s, the financial community invariably listens to academic entrepreneurs peddling their pet philosophies about the financial boom.

There have been many such financial celebrities, though Irving Fisher, the son of an itinerant minister from New York and Connecticut, may have been the first.

Fisher was born Feb. 27, 1867, in Saugerties, New York. Throughout his footloose youth, he thrived at public and private schools that demanded mathematical rigor. Eventually, he entered Yale University as a science major. He ended up in a new area of study called economics. He received his doctorate with one of Yale’s first economics dissertations, and remained associated with the university for the rest of his life.

Fisher was obviously brilliant, though health problems stemming from a bout of tuberculosis early in his career forced him to postpone his plans. This mishap also gave him a taste of his own vulnerability and a lifelong concern for health and eugenics, the now-discredited study of methods designed to improve the genetics of the population.

Consumption Decisions

Once returned to health, Fisher developed revolutionary insights into financial theory that are still invoked today. He explained that the market interest rate coincides with the human tendency to discount an uncertain future when compared with the more pressing present. He argued that we distribute our present and expected future wealth over the consumption decisions we make now and in the future. In doing so, he anticipated the life-cycle hypothesis that would demonstrate, half a century later, why we save and how we consume.

And, he showed that we make our financial decisions based on real wealth and real interest rates. Consequently, he devoted his career to designing financial instruments that are immune to inflation. Indeed, he proposed the first inflation-protected Treasuries that offer a fixed real interest rate by allowing the coupon payments to rise along with prices.

Fisher was zealously entrepreneurial for his new financial instruments and his economic theories. He lobbied presidential candidates to promote his inflation-protected bonds, but he showed a remarkable tendency to back the wrong horse.

He also put his money where his mouth is. First, he accumulated data on inflation so that he would be prepared to help calculate the necessary coupon on inflation-protected bonds. To keep track of the data he maintained on index cards, Fisher designed a large revolving-file system to allow for their quick retrieval. When he felt he perfected his system, he sold a version of the idea that allowed the New York City telephone company to organize and quickly retrieve telephone numbers.

His concept eventually became the Rolodex system. When another business company merged with him to form Remington Rand, Fisher became a multimillionaire. His self-made fortune and his financial theories became the stuff of legend on Wall Street during the Roaring Twenties and made Irving Fisher as close to a household name as any academic financial economist.

Fisher absolutely believed in the manifest destiny of the U.S. as it became the world’s economic superpower. The media sought him out to provide regular doses of financial-market optimism. Even when trouble loomed, and the stock market crashed in October 1929, Fisher offered reassurance that the market was just taking a breather before it expanded again.

Momentary Irrationality

Fisher succumbed to his own optimism, as had millions of others. By the late 1920s, he had lost most of his considerable fortune. In the early 1930s, he devoted his remaining assets to one long-shot investment after another, always in the belief that the market would soon overcome its momentary irrationality.

He would have lost everything had it not been for the generous decision by Yale University to accept the donation of his home under the provision that he and his wife could remain there until they died.

Fisher tried to resurrect his reputation by offering his advice to presidents and even to John Maynard Keynes, whose star ascended during the Great Depression. Still, Fisher’s prophecy on the eve of the 1929 crash that “stock prices have reached what looks like a permanently high plateau” haunted him to his death.

(Colin Read is chairman of the finance department at the State University of New York, Plattsburgh. He is the author of the “Great Minds in Finance” series and other finance titles published by Palgrave Macmillan. The opinions expressed are his own.)

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