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OEconomia (2013), 2013:263-286 NecPlus
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Dossier: Business Cycles, Money and Economic Policy. Essays Dedicated to Pascal Bridel

“The Debt-Deflation Theory of Great Depressions”: On Irving Fisher’s Use of Medical Metaphors

Annie L. Cota1

a1 Centre d’économie de la Sorbonne (CES), University Paris 1 – Panthéon-Sorbonne.
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cot al [Google Scholar]


Fisher’s early 1930s “debt-deflation theory of depressions” is characterized by one central epistemic feature: the role held by medical analogies throughout the description and analysis of economic booms and depressions—both as epistemic analogy, carrying a transfer from the analytical treatment of medical diseases to the analytical treatment of economic diseases, and as structural analogies, implying a transfer from the design of medical treatments to the design of economic policies. After presenting Fisher’s “debt-deflation theory of depressions” (section 1), the paper focuses on the “two major economic maladies,” the debt disease and the dollar disease (section 2), and offers an interpretation of these metaphors in terms of a new frontier between what Georges Canguilhem named “the normal” and “the pathological” (section 3).


La théorie de la déflation par la dette développée par Irving Fisher au début des années 1930 se caractérise par un recours répété aux analogies médicales, qui fonctionnent tout à la fois comme des analogies épistémiques, impliquant un transfert de traitement analytique entre les maladies médicales et les maladies économiques, et comme des analogies structurelles, impliquant un transfert entre la conception de traitements médicaux et la conception de politiques économiques. Dans une première section, l’article présente la théorie de la déflation par la dette; une deuxième section est consacrée à l’analyse des « deux principales maladies économiques » décrites par Fisher, la maladie de la dette et la maladie du dollar ; la dernière section propose une analyse de ces métaphores en termes de déplacement de la frontière qui sépare, dans les deux domaines, le « normal » du « pathologique ».

Keywords:Irving Fisher; Georges Canguilhem; rhetorics; medical metaphors; depressions; business cycles; eugenics

Mots-clés :Irving Fisher; Georges Canguilhem; rhétorique; métaphores médicales; crises économiques; cycles économiques; eugénisme

JEL:B22; B31; B40; B32


I wish to thank Michaël Assous, Cléo Chassonnery, Amanar Akhabbar, Jean-Sébastien Lenfant and two anonymous referees for their careful reading of a previous version of this paper. All remaining errors are, of course, of my sole responsibility.

It is characteristic only of narrow minds to decry medical science because physiological phenomena cannot be calculated as accurately as the planetary movements. Political Economy is the hygiene and pathology of the social system. (Antoine-Augustin Cournot, Researches into the Mathematical Principles of the Theory of Wealth, 1838/1897, 16)

I feel most earnestly the truth of this idea: that social science is very immature and that it will be a long time before it reaches the “therapeutic” stage, that the efforts of philanthropists to treat of therapeutics too soon, both delays the solid progress of the humbler preliminary stages of the anatomy and physiology of society and is more likely to lead to evil than good… (Irving Fisher, Letter to Will Elliot, 1895)1

New York Herald Tribune, September 5, 1929: “There may be a recession in stock prices, but not anything in the nature of a crash. Dividend returns on stocks are moving higher. This is not due to receding prices for stocks, and will not be hastened by any anticipated crash, the possibility of which I fail to see.” The article is signed by the most prominent monetary macroeconomist of the time, Irving Fisher.

Two days after the bull market reached its peak, Fisher observed reversal signs of the upward trend in stock prices. He claimed that he foresaw no crash in the stock market. The following day, he asserted “Stock prices are not too high and Wall Street will not experience anything in the nature of a crash.”2 A month later, on October 22, 1929, the New York Times headlined “Fisher Says Prices of Stocks Are Low,” announcing the declaration that “[s]tock prices appear to have reached a permanently high plateau” (see Barber, 1985, 77). By the end of November the New York Stock Exchange had gone down 30% from its 1920s peak.

These pronouncements on the crash have been the object of many criticisms and teasing,3 followed by a devastating effect on Fisher’s reputation as a macroeconomic previsionist.

Three years after the crash, in the Presidential Address he delivered at the American Statistical Association,4 Fisher lengthily came back to this founding episode:

We are now going through an economic eclipse which began in September 1929. But few if any economists predicted it, or, if so, they failed to make their predictions public… It is well that we face these failures and that, when we fail, we confess it with due humility. I confess it. It is true that in September 1929, I publicly stated my belief that we were “then at the top of the stock market” and that there would be a recession… And this proved true. But unfortunately I also stated my belief that the recession would be slight and short; and this proved untrue. I can now see that my failure was due to insufficient knowledge of both kinds, scientific and historical. I did not then know certain scientific laws of depressions and I did not know, as well as I should, the historical background of conditions… As to the laws governing depressions, I did not then know, what since I have learned and embodied in my book, Booms and Depressions, the important role of over-indebtedness and its tendency to break down the price level through distress selling, contraction of deposit currency, and slackening of its velocity. Had I had these two sorts of knowledge in 1929, even to the modest extent which I can now claim to have them, that is, if I had had more correct and complete historical information on the one hand, and more correct and complete knowledge of some of the scientific laws involved on the other, my failure to predict this economic eclipse would at least have been lessened. (Fisher, 1933a, 9-10)

Notwithstanding his personal situation,5 the depression had two major consequences for Fisher: the launching of the Econometric Society6 and the elaboration of a theory of economic fluctuations; a theory he had not constructed before the depression, neither analytically, nor statistically, he claimed in his talk on “The stock market panic in 1929” given at the meeting of the American Statistical Association on December 28, 1929:

Perhaps some of you who are more or less familiar with my work in statistics may not realize it, but this is the first time I have ever tried to analyse an historical event and to trace all the causes at work. I have never studied or written a paper on business cycles as such. I have merely tried to trace individual threads, such as the rate of interest, or the change in the purchasing power of money. Yet, much to my amazement, I have been credited with having a theory of the whole phenomena.7

Often discussed in the secondary literature (Allen, 1977; Allen, 1993; Barber, 1985; Barber, 1996; Boyer, 1988; Dimand, 1993; 1994; 1995; 1997; 1998 and 2003; Gerdes, 1986; McGrattan and Prescott, 2004; Pavanelli, 2001), Fisher’s new theory is characterized by one central epistemic feature which stayed unnoticed: the new role held by medical analogies throughout the description and analysis of economic booms and depressions—both epistemic analogies (carrying a transfer from the analytical treatment of medical diseases to the analytical treatment of economic diseases) and structural analogies (implying a transfer from the design of medical treatments to the design of economic policies). These analogies will be the subject of this article. After presenting Fisher’s “debt-deflation theory of depressions” (section 1), the paper focuses on “the two major economic maladies”, the debt disease and the dollar disease (section 2), and analyses these metaphors as designing a new frontier between what Georges Canguilhem named “the normal” and “the pathological” (section 3).

1. The Debt-Deflation Theory of Depressions

Booms and Depressions begins with the same emphasis on the novelty of the subject to Fisher:8 “The vast field of ‘business cycles’ is one on which I had scarcely ever entered before, and I had never attempted to analyse it as a whole.” (Fisher, 1932b, vii)

1.1. “Is there such a thing as the ‘business cycle’?”

Published in 1932, the book had been preceded by a presentation at Yale in 1931 on “The Debt-Deflation Theory of Depressions.” Emphasizing the effect of unanticipated deflation on the real value of inside debt, Fisher offered the hypothesis that an initial transfer of wealth from borrowers to lenders—the “debt disease”—would lead to a situation of over-indebtedness, followed by a process of deflation—the “dollar disease”—and thereafter to a depression. On January 1, 1932, he lectured on the same subject at the American Association for the Advancement of Science conference in New Orleans.9 In April 1932, Fisher presented his ideas on the “debt disease” and the “dollar disease” to the House of Representatives Committee on Ways and Means.10 In October 1933, he presented a paper entitled “The Debt-Deflation Theory of Great Depressions” at the 21st session of the International Statistical Institute meeting in Mexico City.11 The paper was published in the first volume of Econometrica as Fisher’s presidential address to the Econometric Society.12 One year later, in 1934, Fisher lectured on the international transmission of booms and depressions at the twenty-second session of the International Statistical Institute in London.13 Privately printed by Fisher in a revised version, under the title “Are Booms and Depressions Transmitted Internationally Through Monetary Standards?” (Fisher, 1934b), the paper was later published in the Bulletin de l’Institut International de Statistique (Fisher, 1934b).

Fisher’s theory of the debt-deflation theory of depressions not only represented a change from his 1920s theory of economic fluctuations as a “dance of the dollar”, it also involved a shift from the type of metaphors and analogies which he commonly used in his previous economic writings.

1.2. Metaphors and analogies

The literature on metaphors has drastically grown since two decades.14 According to the canonical tradition, which dates back to Aristotle, “a ‘metaphor’ is the application [to something] of a name belonging to something else”.15 Through this name transfer, it refers to the transfer of specific qualities from one field of knowledge to another: namely the attribution to the object (a) of the name or characteristics of another object (b), when these name and characteristics are not normally associated with (a).

In his essential work on the role of “natural images” in eighteenth century economic thought, I. B. Cohen16 distinguishes four forms of interactions between scientific discourses in natural sciences and in social sciences: identities, metaphors, analogies, and homologies. Identities imply a strict superposition of significations between two concepts or two images. Metaphors refer to the Aristotelian notion of a general transfer of characteristics and qualities from one field of knowledge to another. Analogies imply a structural resemblance between given elements of two analogues,17 whereas homologies imply a formal resemblance between them.18

Mechanical identities, analogies or homologies in economics thus imply a shift from the objects, definitions, or theorems in physics to the objects, definitions, or theorems in mathematical economics.19 Whereas medical metaphors, analogies and homologies in economics concern either a transfer of definition, a transfer of properties, a transfer of “diagnosis,” or a transfer of “therapies” from one field of knowledge (medicine) to the other (economic theory): the definitions, properties, diagnosis and therapies of organic diseases being applied to the definitions, properties, diagnosis and therapies of economic diseases.

Finally, such convections always imply an epistemic transfer of the border line between normality and pathology in the two fields: a transfer of the analytical and pragmatic technologies through which either physicists or physicians on the one hand, and economists on the other distinguish between a “normal” situation and a “pathological” situation.

Until the 1930s series of papers on economic fluctuations, Fisher’s declarations in favour of a methodological consonance between economics and physics had been both numerous and radical. His Mathematical Investigations in the Theory of Value and Prices relied on an inaugural comparison between the objects and methods of mechanics and the objects and methods of economic analysis. They were followed by many claims on the same subject, as in this round table organized in 1916 at the twenty-eighth meeting of the American Economic Association: “One of the speakers has said that economics is not physics. No, but its method is the method of physics, and I believe a study of physics to be one of the best preparations for a young man intending to enter economic theory.” (Fisher, in Davenport et al., 1916, 166)

Often claiming his pride of having being the first author to introduce mathematical economics in the United States,20 Fisher clearly associated the methodology of this new field of mathematical economics with the methodology of classical mechanics—thus relying on a strict definition of the mathematical relation between situations of equilibrium and situations of provisory disequilibrium. Hence his former views of business cycles as a mere “dance of the dollar.”

1.3. A metaphorical shift: from economic disequilibria to economic diseases

Contrasting with this strong and repeated methodological belief, the 1930s writings on the debt-deflation theory (Fisher, 1932b, 1933a, 1934a, 1934b and 1934c) share a common shift away from this founding analogy between economics and physics, and replace it by another metaphorical transfer, between pathological diseases and economic diseases.

This displacement from one set of metaphors to another is clearly designed in the 1933 article, “The Debt-Deflation Theory of Great Depressions,” described by Fisher “as embodying, in brief, this present ‘creed’ on the whole subject of so-called ‘cycle theory.’”21

In the opening section of the article, Fisher first compares economic fluctuations—the “so-called cycle theory”—to a “disequilibrium” of the “economic system”:

The economic system contains innumerable variables - quantities of goods (physical wealth, property rights, and services), the prices of these goods, and their values (the quantities multiplied by the prices). … Only in imagination can all of these variables remain constant and be kept in equilibrium by the balanced forces of human desires, as manifested through “supply and demand”. (Fisher, 1933a, 337)

“Disequilibrium” would here refer to the distance between theoretical analysis and empirical observations, both being part of “economic theory”: “economic theory includes a study both of (a) such imaginary, ideal equilibrium—which may be stable or unstable—and (b) disequilibrium. The former is economic statics; the latter, economic dynamics. So-called cycle theory is merely one part of the study of economic dis-equilibrium.” (ibid., 337)

This first duo (statics and dynamics) is thereafter combined with another pair, composed of economic history and economic science:

The study of dis-equilibrium may proceed in either of two ways. We may take as our unit for study an actual historical case of great dis-equilibrium. . . .; or we may take as our unit for study any constituent tendency, such as, say, deflation, and discover its general laws, relations to, and combinations with, other tendencies. The former study revolves around events, or facts; the latter, around tendencies. The former is primarily economic history; the latter is primarily economic science. Both sorts of studies are proper and important. Each helps the other. (ibid., 337-338)

This encompassing framework is hereafter applied to what Fisher named the “so-called cycle theory.” Addressing the central question of the explanation of the 1929 cyclical downturn and of the long depression which followed, Fisher rejects as a “myth” “[t]he old and apparently still persistent notion of ‘the’ business cycle, as a single, simple, self-generating cycle (analogous to that of a pendulum swinging under influence of the single force of gravity) and as actually realized historically in regularly recurring crises” (ibid., 338-341).

According to his new debt-deflation theory of cycles, economic fluctuations are neither single, nor simple, nor self-generating: “Instead of one force there are many forces. Specifically, instead of one cycle, there are many co-existing cycles, constantly aggravating or neutralizing each other, as well as co-existing with many non-cyclical.”22

Therefore, if economic theory is capable to describe a situation where “all, or almost all, economic variables tend, in a general way, toward a stable equilibrium”, this “classroom exposition,” cannot account for the fact that “the exact equilibrium thus sought is seldom reached and never long maintained.” (ibid., 339)

Hence the object of Fisher’s article: the necessity to produce a new theory for “the great booms and depressions”, based on “two dominant factors”—or two “big bad actors” (ibid., 341)—, both repeatedly described as maladies or diseases.23

2. Two Major “Economic Maladies”

I have, at present, a strong conviction that these two economic maladies, the debt disease and the price-level disease (or dollar disease), are, in the great booms and depressions, more important causes than all others put together. (Fisher, 1933a, 341)

This medical comparison is continuously repeated in the early 1930s writings on the theory of booms and depressions.24

2.1. The debt disease and the dollar disease

“We are suffering from two economic diseases”, insisted Fisher in front of the members of the House Committee on Ways and Means, “the debt disease and the dollar disease. The debt disease has led to the dollar disease.” (Fisher, 1932/1977, Vol. 10, 33). The following explanation is highly pedagogical:

By the debt disease, I mean that in 1929 we had a tremendous over-indebtedness. It showed itself first in the collapse in the stock market, because the American public had been speculating to such a tremendous degree, and speculating in the stock market is simply going into debt. The fact that this is done on margin through the broker merely puts the debt out of sight…. Not only was [the customer] in debt, but the farmer was tremendously in debt since the war days…. Then there were the tremendous intergovernmental debts, the reparation debts, and the tremendous internal Government debts. Then there were the international debts that we extended to Europe in the way of credit to help Europe to recover. Then there were the consumer debts to finance instalment buying. Then there were the great debts at the banks… the debts today are in effect greater… because of the enlargement of the dollar. That is the dollar disease… . as I diagnose the situation, those are the two diseases from which we suffer. (ibid., 33-35)

Booms and Depressions flags the same basic medical analogies, where depressions (now described as “Private Profits diseases”25) are related to the same two major economic diseases: “The Debt Disease” and “The Dollar Disease” (Fisher, 1932b, 26-27), with the same causal link, expressed in terms of aggravation (or deterioration) between the two states: the “debt disease” being a precondition to the “dollar disease,” as a cold could be seen as a precondition to pneumonia. “In a word, if we must suffer from the debt disease, why also catch the dollar disease? If we catch cold, why let it lead to pneumonia?” (ibid., 28)

Other “secondary variables”, described as “affected” by the “big bad actors”—debt and deflation—play a role in the process: debts, circulating media, their velocity of circulation, price levels, net worth’s, profits, trade, business confidence, and interest rates (ibid., 341).26 The dynamic process leading to a crisis is thereafter described in a logical order of nine sequences:27

The chief interrelations between the nine chief factors may be derived deductively, assuming, to start with, that general economic equilibrium is disturbed by only the one factor of over-indebtedness, and, in particular, assuming that there is no other influence, whether accidental or designed, tending to affect the price level.28

But Fisher soon replaces this mechanical “chain of consequences” by other types of causality, shaped on the model of pathological reactions between two types of maladies.

2.2. A “scientific ideology”

It is the combination of both—the debt disease coming first, then precipitating the dollar disease—which works the greatest havoc… The two diseases act and react on each other. Pathologists are now discovering that a pair of diseases are sometimes worse than either or than the mere sum of both, so to speak. And we all know that a minor disease may lead to a major one. Just as a bad cold leads to pneumonia, so over-indebtedness leads to deflation. (Fisher, 1933a, 344)

The metaphor also concerns the precise workings of the aggravation: as in medical diseases, the process of deterioration from cold to pneumonia could reverse the causality between the symptoms of the former and the symptoms of the latter, or even between the propagation mechanisms from the former (the cold, or the debt disease) to the latter (the pneumonia, or the dollar disease) and from the latter to the former: “True, the debt disease is often the precipitator of the dollar disease but, under the operation of the vicious spiral, the debt disease soon becomes the effect, and the dollar disease, the cause.” (Fisher, 1932b, 121)

Possible “therapies” would thence imply a choice between “leaving recovery to nature” or “artificial respiration”—and Fisher clearly advocates in favour of the latter.29 “In summary, we find that… the ways out are either via laissez faire (bankruptcy) or scientific medication (reflation)” (ibid., 349). Thereby, had policy experts chosen reflation, “[w]e would have had the debt disease, but not the dollar disease—the bad cold but not the pneumonia.” (ibid., 347)

This bad cold/pneumonia metaphor clearly constructs what Georges Canguilhem calls a scientific ideology:

in a scientific ideology there is an explicit ambition to be science, in an imitation of some already constituted model of science. (Canguilhem, [1966] 1991, 33)

The simile of an aggravation from a debt disease to a dollar disease during booms is often repeated:

Now, even granted that the debt disease was not preventable, the dollar disease is wholly preventable. It was not necessary, because the patient had grippe, that he should have pneumonia. You could have the debt disease without having the dollar disease. (Fisher, 1932/1997, Vol. 10, 35)

Moreover, it is generalized into a global view of “economic science”:

if all this is true, it would be as silly and immoral to “let nature take her course” as for a physician to neglect a case of pneumonia. It would also be a libel on economic science, which has its therapeutics as truly as medical science… . To find the proper therapy for these diseases will keep economists busy long after we have exterminated the dollar disease. (Fisher, 1933a, 347)

The message is clear: whereas a shift from disequilibrium to equilibrium is a simple matter of mechanical self-regulation of the system, a transition from pneumonia to bad cold necessarily implies a medical intervention—practicing “artificial respiration” instead of “leaving recovery to nature”—, as the transition from the debt disease back to the dollar disease involves a “proper therapy”— i.e. a proper economic policy—from the part of the economic profession.

Hence Fisher conclusion on the necessity of a monetary economic policy designed to “prevent” or “cure” these situations of depression: “Finally, I would emphasize the important corollary, of the debt-deflation theory, that great depressions are curable and preventable through reflation and stabilization.” (Fisher, 1933a, 350)

2.3. More medical metaphors

Deteriorations from colds to pneumonias as a mirror for the “big bad actors,” debt disturbances and price-level disturbances, are not the only medical metaphor designed by Fisher in his early 1930s papers on booms and depressions.

Firstly, the idea that booms are responsible for the following depressions is also formulated in terms of “unhealthy” milieu, medically implying a causal link in terms of viral transmission of slumps. “In this way, America promoted or aggravated abroad the same unhealthy boom which was putting both our neighbors and ourselves in position for a slump.” (Fisher, 1932b, 76). The central role of “unhealthy” contexts is also enhanced in this section from Booms and Depressions where Fisher speaks of French peasants caught by tuberculosis. “French peasants who have tuberculosis still shut their windows lest fresh air be allowed to get in and make them worse; and a generation ago, all the rest of us refused to believe that ‘a bad cold’ (as seemed to be) could be cured by the air, which we had always been taught to shut out—what else were houses for?” (ibid., 143)

Secondly, “Diagnosis”, described as a “condition for the remedy,” gives Fisher another strong analogy between the medical discipline and the economic discipline: “A monetary disease involves a profit disease. This is the core of the diagnosis and on that diagnosis depends the remedy.” (ibid., 114). Therefore, a wrong diagnosis may lead to wrong “therapeutic measures.” “[I]t is said that even if there is expansion, it should properly be the result of recovery, and not used as a means of recovery,” writes Fisher in a 1933 paper, read at a meeting of the American Academy of Political and Social Sciences. “As I understand it…, that is reverting the cause and effect in this depression because of a wrong diagnosis. If we must wait for recovery to raise the price level, then price-level-raising is not a therapeutic measure at all.” (Fisher, 1934a/1997, Vol. 10, 130)

Thirdly, both diagnosis and remedies are classified in two categories: “palliative” diagnosis and “palliative” remedies—also called “first aid” cures and remedies—;30 and diagnosis and remedies which “go to the root of the disease.” This second category of diagnosis and remedies could thus both prevent and cure economic diseases.31

Palliative remedies refer to types of economic policies which are related to other interpretations of economic fluctuations than Fisher’s: they are described as “substantive cures,” whose “importance is secondary. They are, it seems to me, palliatives, but not inconsistent with the currency reform which do go to the roots.” (ibid., 114) Like in medicine, first aid remedies do neither cure the disease, nor prevent it: “generally speaking, even large palliatives are not cure—at any rate not preventives.” (ibid., 120). The second category of remedies, “which, according to the diagnosis of this book, go to the root of the disease” (ibid., 114), essentially concern “currency reforms.” (ibid.)

These efficient remedies should consequently be used as “preventive remedies”: in other terms, economists should concentrate on “prevention” through monetary policy. This is probably the major rationale for this extensive use of medical metaphors throughout Fisher’s 1930s papers: depressions can be prevented through a properly prepared monetary policy. “As will be seen, the main conclusion of this book [Booms and Depressions] is that depressions are, for the most part, preventable and that their prevention requires a definite policy in which the Federal Reserve System must play an important role.” (ibid., viii)

Fourthly, another set of medical analogies concerns the “contagion” process and the analysis of the propagation of the “virus” of depression in terms of “infections,” and “epidemics.”

The idea of a “contagion” spreading from one type of debts to another, thus bringing about an “epidemic” of liquidations was already expressed in Fisher’s 1932 address to the American Association for the Advancement of Science32. In the 1934 paper, “Are Booms and Depressions Transmitted Internationally Through Monetary Standards?”, depressions are described as a disease caused by a “virus,” whose propagation from one nation to another implies the “conduit” of a common international monetary standard. Therefore, the workings of the demonstration lead Fisher to a description of the propagation mechanisms in terms of virus, infection, or immunity:

[W]ith the exception of 1931-32, it seems that the depression has been, in each country, chiefly ruled by its changes of price level. And since we have found that these changes differ with different monetary standards, it ought naturally to follow that the virus of depression is carried from one country to another via a common monetary standard as the conduit. That is, one gold standard country infects another until they all come down with the depression disease, while those countries not on the gold standard are relatively immune… . The observation that depressions travel internationally… is not new. It may almost be called common knowledge. But the facts that the infection is carried chiefly via the monetary standard and that without such a conduit there is little infection are less well known. (Fisher, 1934c, 16-18)33

Fifthly, at last, when he analyses the causes of economic diseases, Fisher does not only review institutional elements. He points at individual feverish episodes: investment fevers, demand fevers, or “feverish speculative demand.”

Fevers are described as “symptoms” of the phase of prosperity preceding the crisis, thus leading to depressions, characterized by other types of social fevers and diseases, like poverty and tuberculosis. This fever analogy is essentially developed in Booms and Depressions, where both the “investment fever” and the “borrowing fever” refer to an “inexperienced” public, potentially ready to catch and propagate such fevers. “Moreover, the inexperienced American public had been prepared for an investment fever by the financing of America’s share in the World War. Unlike previous wars, this one was not financed exclusively by bankers and people of wealth. Nearly everybody had invested in it, even if only to the extent of a ‘baby bond’ which was also a new idea. Millions of people, who before the war had never known what an ‘investment’ was, suddenly became the proud possessors of securities, often bought with borrowed money.” (Fisher, 1932b, 74)

These episodes are described as an essential mechanism of the speculative phase of the cycle, where they dynamically lead to a “propagation” of borrowings (the “borrowing fever”), leading to a crisis and a depression:

Then there was the capital gain tax, improperly included in the income tax. During the rising market, this capital gain tax deterred many a holder of rising stocks from selling them and reinvesting the gains j for the holder knew that if he sold, he would be penalized by having a large share of his increased capital taken away from him by the Internal Revenue office. He therefore hung on to his stock j and, in order to invest the increased worth, he borrowed—using his appreciated stock for security. The effect of this borrowing fever was steadily and enormously to inflate the deposit currency. Corporate profits rose, and the price level in the stock market rose. These were ominous signs.34

Such “fevers” partly refer to ignorance and irrational behaviour35—similar in this aspect to other passages of the book, where Fisher addresses the “new-equipment fever” (Fisher, 1932b, 31), or the “feverish speculative demand,” indicated, during the 1929 boom, by the high call loan rates. (ibid., 211)

The causes are individual, but the “remedies” refer to the same scenario than previously: although they relate to the inexperience of the public, these individual fevers could be controlled by institutional therapies—monetary policies—, and these therapies could sometimes lead to some forms of individual “recovery.”36

Such a hypothesis of feverish irrational or inexperienced agents was not new to Fisher, who had already relied on it in some previous writings.37 What is new in Booms and Depressions, is this correlation introduced between ignorance (or “lack of acquisition of knowledge”), medical irrationality, medical diseases, money illusion and instability of the dollar. As in this extract, already mentioned, about French peasants who were supposed to shut their windows when they had tuberculosis:

Perhaps the lag between the acquisition of knowledge and its general acceptance was shorter in the case of tuberculosis than in that of astronomy, because its application was of practical importance. The question of stabilizing the dollar lies in an intermediate region. It is immensely important, since the instability of money is a major cause of poverty and of the diseases (including tuberculosis) which go with poverty; but… the disposition to see the truth about the dollar is forestalled by a very definite illusion. (ibid., 143)

This quote relates to two different themes. First, the role, already evoked, of the milieu as an exogenous factor of both medical diseases and economic diseases: the instability of money would create the conditions for a depression in the same manner than the lack of fresh air would create the conditions for worsening a cold into a tuberculosis. The second theme involves a crossed correlation, between ignorance and medical disease (here tuberculosis), on the one hand; money illusion, economic disease (dollar instability), poverty and medical disease (tuberculosis again), on the other hand. Fisher thus operates a radical shift from an endogenous explanation of economic fluctuations to an exogenous explanation of business cycles, whose final cause would refer either to ignorance or to the poor quality of the public’s “human capital,” leading to a low capacity to anticipate the future. In other words, the failure of rational thinking of the “inexperienced American public” is here presented as a major factor of economic depressions—and thus of social distress.

3. The Normal and the Pathological: A New Frontier

Medical analogies are not the only analogies referred to in the corpus devoted to the debt-deflation theory of depressions38. Fisher also compares liquidation with the tipping and capsizing of a boat,39 depressions with “spirals” (Fisher, 1932b, 40) or with events “full of tangles and cross-currents” (ibid., 41). But the image of “the bad cold” turning into “pneumonia” shapes the central analogies of his analysis, giving them their scope and dynamics.

A biographical recall could contextualize these insisting analogies. In 1898, at the age of thirty-two, Fisher was diagnosed with tuberculosis40—a six years long episode, he later commented, which “greatly changed [his] point of view from that of an academic student of supply and demand as a mathematical problem to that of partaker in public movements for the betterment of mankind.”41 There were many “partaking”—theoretical as well as practical: from a lifelong advocacy in favour of public health policies to various experiments on the influence of “flesh eating” on endurance with his Yale students, to a mechanical device for visualizing the dietary balance of “food values,” or to the plans of a tent for the outdoor treatment of tuberculosis.42

But the most important, and certainly the most time-consuming, related to Fisher’s strong involvement into the American eugenics movement. For more than twenty-five years, Fisher led a double career, as a University professor at Yale, and as an advocate for eugenics, engaging intensively into numerous committees, delivering speeches and conferences, writing articles, publishing books on health and eugenics.43 In 1907, Fisher organized and chaired, under the sponsorship of the American Society for the Advancement of Science, a “Committee of One Hundred on National Health.” He then became member of the “National Conservation Commission”, created by Theodore Roosevelt, where he prepared the text entitled National Vitality, Its Waste and Conservation, assigning a central position to eugenics. In 1909, he met the geneticist Charles B. Davenport, a central character of the eugenics movement, with whom he closely collaborated for many years. Together with Davenport, Fisher was an active member of the “Eugenics Record Office,” of the National Tuberculosis Association and of the “Life Extension Institute.” After World War I, he organized and chaired a “Committee of Sixty” (in favour of prohibition), was appointed president of the “Sub-Committee on Alcohol” of the Council of National Defense. He chaired the Ad Interim Committee of the American eugenics movement, created in 1915, at the second International Eugenics Congress. He settled down the “Race Betterment Foundation.” In 1921, he became president of the “Eugenics Research Association” and chairman of the “Eugenics Committee of the United States of America.” In 1926, he was instrumental in setting up the “American Eugenics Society,” becoming its first president. The numerous writings Fisher devoted to this “crusade” largely inform about the strength of the medical reference for him, both regarding this often forgotten part of his theoretical work and regarding his methodological convictions.

Positioned in this context, Fisher’s 1930s writings on booms and depressions appear as carrying two different types of analogies between medicine and economics: epistemic analogies and structural analogies. Epistemic analogies (“diagnosis”, “disease”, “fever”) are bound to legitimize a transfer of the analysis of the causes and consequences of medical diseases to the causes and consequences of economic diseases. Structural analogies (such as the distinction between “palliative remedies” and “preventive remedies”) imply a transfer from the technology and designs of medical treatments to the technology and designs of economic policies. In both cases, these analogies do not simply refer to some form of doxa: they appear as carefully designed with the purpose of producing both a new set of analytical propositions on the theory of depressions and a new set of economic policies. In a word, they act as a “scientific ideology.”

Epistemic analogies have still another function. As we have said, they convey a new definition of the frontier dividing what Georges Canguilhem called “the normal” and “the pathological”—a line which allows Fisher to shape the definition of “the normal” from the perspective of “the pathological.” In this perspective, a state of pathological dollar or of pathological debt (of “dollar disease” or of “debt disease”) would carry an implicit new definition of a state of “normal” dollar or of “normal” debt. Commenting, in the “Postscript” to Booms and Depressions, the fact that “recovery seems to be in sight,” Fisher gives the following comment: “If the end of the great depression is really at hand, it will be the result… of human effort more than a mere pendulum reaction” (Fisher, 1932b, 158), thus pointing precisely at the respective differences between a normal state and a pathological state in physics and in medicine. Like “a mere pendulum reaction,” a state of disequilibrium can mechanically turn back to a state of normal equilibrium, whereas a pathological state of disease implies some forms of “human effort” to turn back to a state of normality. The differences refer both to the formal process through which the line is drawn (mathematics versus diagnosis), and to the leading concept of the two pairs “good health-disease” and “equilibrium-disequilibrium”: it is from a pathological state of disease that a state of good health can be defined in medicine, while it is from a state of equilibrium that a state of disequilibrium can be defined in mechanics—as in early North American marginalist economics.

Fisher’s use of medical analogies thus carries two types of normative implications. Both “the dollar disease” and “the debt disease” are supposed to grow into a depression if they are not diagnosed, prevented and treated with an efficient set of policies, along the same process through which a cold or a grippe would grow into a tuberculosis if they are not diagnosed, prevented or treated with an efficient set of therapies. This artefactual similarity strongly sustains Fisher’s call for a new institutional design in the treatment of economic crises - a design involving both a new set of theoretical analysis of booms and depressions, where disequilibria are neither the sole consequence of an exogenous shock, nor the result of a strictly endogenous process, and a new set of monetary therapies to the “dollar disease” and the “debt disease.”

The other normative implication concerns the role of ignorance and inexperience in the launching of the processes linking booms to depressions—and these themes directly refer to Fisher’s implication in the American eugenic movement, the aim of which was to get rid of these “dysgenic” elements whose ignorance—or, here, whose feverish speculative episodes - lead the whole nation to a succession of booms and depressions, and thus of social, economic and, ultimately, a set of non metaphorical medical diseases related to poverty.

More than his own tuberculosis episode, more than his failure to predict the 1929 depression, this mirror effect between Fisher’s eugenic credo and his economic analysis thus gives a clue both to the structure of his debt-deflation theory of depressions and to the type of policy intervention he fought for throughout the 1930s.


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1 Irving Fisher to William Greenleaf Eliot, June 29, 1895 (Fisher, 1997, Vol. 1, 10, footnote c, my emphasis).

2 New York Times, September 6, 1929, “Fisher doubts Market Crash.”

3 It was only recently that some authors have re-examined Fisher’s analysis on the 1929 stock market crash and his and policy proposals during the Great depression (see Boyer, 1988 ; Barber, 1996, 1999; Dimand, 1994, 1995, 1997, 1998, and 2003; or Pavanelli, 2001).

4 This address was delivered in Cincinnati, Ohio, at the ninety-fourth annual meeting of the American Statistical Association, on December 29, 1932 and published in the Journal of the American Statistical Association in March 1933 (Fisher, 1933b).

5 In his book on The Great Crash, John Kenneth Galbraith writes that “[i]n the late nineteen-twenties Fisher went heavily into the stock market and in the Crash lost between eight and ten million dollars. This was a sizable sum, even for an economics professor.” (J. K. Galbraith, 1977, 192) As a consequence, Fisher, who had borrowed large sums of money from his wife’s sister, had to face a case from Yale’s Internal Revenue Service and was forced to sell his New Haven house to the University. He was later unable to pay the rent and, in 1935, he went under the obligation to retire from his position at Yale.

6 It had been a long fight for Fisher to manage to gather together mathematical economists and statisticians in an international Society. The visit of Ragnar Frisch at Yale in 1930, together with the analytical support given to the project by Charles F. Roos and the financial support from Alfred Cowles III made it possible. In 1931 the Econometric Society was formed and Fisher became its first president.

7 Fisher (1930, in Fisher, 1997, Vol. 10, 27). Fisher was then preparing his first book on the 1929 events: The Stock Market Crash—and After (Fisher, 1932a).

8 See also Fisher’s Hearings before the House Committee on Ways and Means: “… A year ago I had never made any intensive study of depressions. My work in economics has been in writing special monographs on special small subjects and this one that had always seemed to me a pretty big subject and I was putting it off. But a year ago I began to study it, because I was asked to make an address upon it before the American Association for the Advancement of Science. Since that time I have given this all the attention that I could… . I am writing a book upon it, and now I feel, as I did not a year ago, that I do understand the real diagnosis of the depression …” (Fisher, 1997, Vol. 10, 32, emphasis added).

9 Although the full text of this address was not published, the New York Times published extracts in its edition dated January 2, 1932, under the following title: Irving Fisher, “First Principles on Booms and Depressions,” Address to the American Association for the Advancement of Science, January, 1, 1932 (reproduced in Fisher, 1997, Vol. 10, 32).

10 These Hearings are reproduced in Fisher, 1997, Vol. 10, 32-35.

11 The Mexico City meeting of the International Statistical Institute led to the establishment of a commission to study the subject of debt-deflation, with Fisher as a member, and Karl Program as rapporteur (see Dimand, 2003, 54).

12 Fisher 1933a. The paper will be reprinted in the Revue de l’Institut International de Statistique. Robert W. Dimand mentions that in September 1933 Fisher had sent Roosevelt the charts from his debt-deflation paper (see Fisher, 1997, Vol. 14, 65), and reports a note in the Fisher Papers kept at the Manuscripts and Archives Department of the Sterling Memorial Library at Yale, referring to a “copy given FDR, 5/12/34” (Dimand, 2003, 55).

13 Other leading North American economists were present at the London session: Simon Kuznets, on problems in measuring national income, and Mitchell on international patterns in business cycles (see Dimand, 2003, 54).

14 This literature is impossible to fully review it here. Among the materials which were used for this article, see Ricœur (1975), Cohen (1993), Klamer and Leonard (1994), Henderson (1994), McCloskey (1985), Mirowski (1989 and 1994), Théret (1995), Bouveresse (1999), and of course, Daniele Besomi’s extremely accurate work on the subject of medical metaphors associated with business cycles theories (Besomi, 2010 and 2011).

15 See Aristotle’s canonical definition in Poetics, 1457, b, 6-9: onomatos allotriou epiphora (the application of an improper name). For an insightful comment on this classical definition, see Ricœur (1975).

16 Specifically in his lengthy contribution to the collective book The Natural Sciences and the Social Sciences. Some Critical and Historical Perspectives (Cohen, 1993).

17 In the same Aristotelian tradition, analogy comes from analogos, meaning ”in proportion.”

18 I. B. Cohen takes the example of the wing of a bat, analogous to the wing of a bird, and homologous to the bone structure of a mouse (ibid).

19 Like in the famous table of correspondences established in Mathematical Investigations in the Theory of Value and Prices (Fisher, 1892, 85):

“In Mechanics. In Economics.

A particle corresponds to An individual.

Space “ “ Commodity.

Force “ “ Marginal utility or disutility.

Work “ “ Disutility.

Energy “ “ Utility.”

20 See this extract from his 1946 “Address on the Irving Fisher Foundation”: “I entered economic from the standpoint of the mathematical sciences […] It was, I believe, largely through my work and influence that the use of mathematics was introduced and developed in economics.” (Fisher, 1946, 23)—a position which largely undervalued the contributions of Cournot, Walras, Edgeworth or Pareto.

21 Fisher (1933a, 337). This “creed” consists in 49 articles “purposely expressed dogmatically and without proof.” (ibid.)

22 “In other words, while a cycle, conceived as a fact, or historical event, is non-existent, there are always innumerable cycles, long and short, big and little, conceived as tendencies (as well as numerous noncyclical tendencies), any historical event being the resultant of all the tendencies then at work… The innumerable tendencies making mostly for economic dis-equilibrium may roughly be classified under three groups: (a) growth or trend tendencies, which are steady; (b) haphazard disturbances, which are unsteady; (c) cyclical tendencies, which are unsteady but steadily repeated… There are two sorts of cyclical tendencies. One is ‘forced’ or imposed on the economic mechanism from outside… The second sort of cyclical tendency is the ‘free’ cycle, not forced from outside, but self-generating, operating analogously to a pendulum or wave motion.” (Fisher, 1933a, 338)

23 “[N]amely over-indebtedness to start with and deflation following soon after.” (ibid, 341)

24 Although other metaphors may be found in the early 1930s writings, like the canonical metaphor of the reservoir of circulation for currency, “The water in a bath-tub is kept constant when the outflow through the waste-pipe exactly equals the inflow through the supply-pipe; but the slightest turn of the spigot from this equilibrium point will, in time, fill or empty the tub. The interest rate acts like the spigot, to fill or empty the country’s reservoir of circulating deposit currency.” (Fisher, 1932b, 127)

25 “A depression is a condition in which business becomes unprofitable. It might well be called The Private Profits disease.” (ibid., 3)

26 Although Fisher mentions that “no exhaustive list can be given” of these secondary variables (ibid.).

27 Fisher insists upon the logical—or abstract—character of these links: “In actual chronology, the order of the nine events is somewhat different from the above ‘logical’ order, and there are reactions and repeated effects.” (ibid., 344)

28 Fisher (1933a, 341). The following “chain of consequences” can be characterized in nine logical links: “(1) Debt liquidation leads to distress setting and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worth of business, precipitating bankruptcies and (5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to (7) Pessimism and loss of confidence, which in turn lead to (8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (ibid., 342).

29 “Those who imagine that Roosevelt’s avowed reflation is not the cause of our recovery… are very much mistaken… Had no ‘artificial respiration’ been applied, we would soon have seen general bankruptcies of the mortgage guarantee companies, savings banks, life insurance companies, railways, municipalities, and states. By that time the Federal Government would probably have become unable to pay its bills without resort to the printing press, which would itself have been a very belated and unfortunate case of artificial respiration. If even then our rulers should still have insisted of ‘leaving recovery to nature’ and should still have refused to inflate in any way, should vainly have tried to balance the budget and discharge more government employees, to raise taxes, to float, or try to float, more loans, they would soon have ceased to be our rulers.” (ibid., 346-347).

30 See Part Three. “Remedials.” Chapter IX. , “Palliatives and Remedies.” (ibid., 113 sq.).

31 “Before describing the currency reforms which, according to the diagnosis of this book, go to the root of the disease, I will run over briefly the leading ‘substantive cures’—not to disparage them as unimportant, but in the conviction that their importance is secondary. They are, it seems to me, palliatives, but not inconsistent with the currency reforms which do go to the roots.” (ibid., 114) As for the “first aid” diagnosis, Fisher also describes it in medical terms: as “an epidemic of business dislocations” (ibid., 114).

32 “[P]lease note the paradox. A little individual liquidation reduces debts; but when liquidation becomes epidemic—why, then, the more society pays on its debts the bigger it makes those debts, because the bigger it makes each dollar through deflation.” (Irving Fisher, “First Principles of Booms and Depressions,” Address to the American Association for the Advancement of Science, January 1, 1932, in Fisher, 1997, Vol. 10, 32)

33 This section is reproduced in Dimand, 2003, 75-77, emphasis added. Fisher had already made this point in 1933, in a letter to Franklin D. Roosevelt: “It was the universal gold standard which made the depression universal, spreading the deflation infection from one country to another. Only countries not on the gold standard escaped.” (Fisher, 1997, Vol. 14, 57)

34 Ibid., 74. See also Ibid., Appendix 5, 211: “The high call loan rates in 1929 indicate the feverish speculative demand during the boom.”

35 Similar in this respect to other passages of the book, where Fisher addresses the “new-equipment fever” (Fisher, 1932b, 31), or the “feverish speculative demand”, indicated, during the 1929 boom, by the high call loan rates (ibid., 211).

36 “During 1928 the Federal Reserve Board tried to check the speculating fever by gradual advances of the re-discount rate…; but in vain. On August 8, 1929, the rate was advanced more drastically from 5 to 6. This caused an ominous but temporary drop in the market; there was a quick recovery, and not till September 7 did the market reach its peak.” (Fisher, 1932b, 86)

37 This is an old idea of Fisher’s, rooted in his eugenics credence. It can be found in the first edition of his Elementary Principles of Economics, in the passages on the little economic ambition of the “negroes from Philippines.” Or, in the mentions of The Theory of Interest, according to what “[i]n the case of primitive races, children, and other uninstructed groups in society, the future is seldom considered in its true proportions.” Or that the “communities and people” from “India, Java, the negro communities both North and South, the peasant communities of Russia, and the North and South American Indians” would all be “noted for lack of foresight and for negligence with respect to the future.” (see Cot, 2005)

38 Like the canonical metaphor of the reservoir of circulation for currency, “The water in a bath-tub is kept constant when the outflow through the waste-pipe exactly equals the inflow through the supply-pipe; but the slightest turn of the spigot from this equilibrium point will, in time, fill or empty the tub. The interest rate acts like the spigot, to fill or empty the country’s reservoir of circulating deposit currency.” (Fisher, 1932b, 127)

39 “Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing. But if the over-indebtedness is not sufficiently great to make liquidation thus defeat itself, the situation is different and simpler. It is then more analogous to stable equilibrium; the more the boat rocks the more it will tend to right itself. In that case, we have a truer example of a cycle.” (ibid., 344-345). See also Fisher (1932/1997, Vol. 10, 35).

40 Fourteen years earlier, the same disease (tuberculosis) had killed his father, a Congressional clergyman.

41 “My illness and the enforced idleness for several years during which I had much occasion to think about the vital problems of life and death, greatly changed my point of view from that of an academic student of supply and demand as a mathematical problem to that of partaker in public movements for the betterment of mankind” (from a paper prepared in February 1925 for the volume Political Economists in Autobiographies, quoted in Fisher, 1997, Vol. 1, 8).

42 See Fisher (1997, Vol. 13, 257-272 and 250-256).

43 This corpus is far from having been explored exhaustively. William Barber published large extracts from it in the volume 13 of The Works of Irving Fisher (volume 13: A Crusader for Social Causes). This theoretical corpus might, at first sight, be somewhat surprising: Fisher’s positions were rather virulent on such themes as “race deterioration,” the necessity of sterilization measures for certain categories of the population, or his advocacy for an urgent control of the genetic quality of new immigrants (see Cot, 2005).