Fall 2023 Colloquium - William Deringer

Science, Technology, and Society, MIT

Abstract: In two weighty economic volumes published in 1906 and 1907, the American economist Irving Fisher sought to place the science of economics on sounder footing by redefining some of the most fundamental categories of economic analysis, including capital, income, value, and interest. At the center of this transformation was a dramatic rethinking of the nature of economic value and its relationship to time. Fisher asserted that the economic value of anything ultimately derived from the subjective satisfaction (or dissatisfaction) it brought to the individuals who used or consumed it, what Fisher called “psychic income.” These psychic benefits were not a static quantity but were always realized over some space of time, whatever the item—a financial asset, an item of food, a house, a piece of furniture, a piano. Psychic income flowed. All economic decisions, Fisher argued, thus entailed translating between this future flow of benefits (or costs) and circumstances in the present moment. “The basic problem of time valuation which Nature sets us is always that of translating the future into the present,” Fisher would write in 1930, “…coming events cast their shadows before.” Fisher described this process mathematically through a technique called “discounting,” which would become one of the rudiments of neoclassical economics in the ensuing century.

Fisher’s contributions to economic theory—and to the popularization of discounting techniques—are a familiar part of economists’ disciplinary histories and have recently attracted increasing attention from historians and sociologists of modern capitalism. Yet the historical sources for Fisher’s rather peculiar ideas remain little understood. How did Fisher come to comprehend the relationship between time, value, and human subjectivity in this way, and how did he come to see a relatively esoteric financial calculation, discounting, as the key to unlocking the mysteries of economic behavior? This paper—drawn from a book-length “biography” of discounting—recovers an essential and overlooked part of Fisher’s thinking: a “pop psychology” that Fisher assembled while recovering from a physically and mentally debilitating bout with tuberculosis. Fisher’s conception of the human mind and the self combined idiosyncratic (mis)readings of prominent psychological authorities, notably William James, with spiritualist and self-help literature, particularly that associated with the highly popular contemporary movement known as “New Thought” or “mind cure.” The story of Fisher’s pop psychology offers new insight into the psychological underpinnings of early American neoclassical economics and a vivid case study of how the success of highly technical concepts (like discounting) may be enabled by seemingly distant cultural trends.