The Fisher-Friedman-Sumner-Svensson axis
Here is Scott Sumner in 2009: "People like Irving Fisher had a perfectly good macro model. Indeed, except for Ratex it’s basically the model that I use in all my research. But the problem is that these pre-1936 models didn’t use Keynesian language. And they didn’t obsess about trying to develop a general equilibrium framework. A GE framework is not able to predict any better than Fisher’s models, and is not able to offer more cogent policy advice than Fisher’s model. Indeed in many ways Fisher’s “compensated dollar plan” was far superior to the monetary policy the Fed actually implemented last October. (Although I would prefer CPI futures target to a flexible gold price, at least Fisher’s plan had a nominal anchor.)" I used to think of that Scott mostly was influenced by his old teacher Milton Friedman, but I increasingly think that Scott is mostly influenced by Irving Fisher. Well of course this is not really important and Friedman undoubtedly was hugely influenced by Irving Fisher. Fisher's influence on Friedman is excellently explained in a paper by Bordo and Rockoff from earlier this year, Here is the abstract: "This paper examines the influence of Irving Fisher’s writings on Milton Friedman’s work in monetary economics. We focus first on Fisher’s influences in monetary theory (the quantity theory of money, the Fisher effect, Gibson’s Paradox, the monetary theory of business cycles, and the Phillips Curve, and empirics, e.g. distributed lags.). Then we discuss Fisher and Friedman's views on monetary policy and various schemes for monetary reform (the k% rule, freezing the monetary base, the compensated dollar, a mandate for price stability, 100% reserve money, and stamped money.) Assessing the influence of an earlier economist's writings on that of later scholars is a challenge. As a science progresses the views of its earlier pioneers are absorbed in the weltanschauung. Fisher's Purchasing Power of Money as well as the work of Pigou and Marshall were the basic building blocks for later students of monetary economics. Thus, the Chicago School of the 1930s absorbed Fisher's approach, and Friedman learned from them. However, in some salient aspects of Friedman's work we can clearly detect a major direct influence of Fisher's writings on Friedman's. Thus, for example with the buildup of inflation in the 1960s Friedman adopted the Fisher effect and Fisher's empirical approach to inflationary expectations into his analysis. Thus, Fisher's influence on Friedman was both indirect through the Chicago School and direct. Regardless of the weight attached to the two influences, Fisher' impact on Friedman was profound." I wonder if Bordo and Rockoff would ever write a paper about Fisher's influence on Sumner...or maybe Scott will write it himself? I especially find Scott's "link" to the compensated dollar plan intriguing as I fundamentally think that Scott's intellectual love affair with "Market Keynesian" Lars E. O. Svensson has to be tracked back to exactly this plan. PS I am intrigued by the compensated dollar plan (CDP) and I increasingly think that variations of the CDP could be a fitting monetary policy set-up for Emerging Markets and small open economies with underdeveloped financial markets. One day I might get my act together and write a post on that topic.