The Money Illusion

by Irving Fisher

This scarce antiquarian book is a facsimile reprint of the original. Due to its age, it may contain imperfections such as marks, notations, marginalia and flawed pages. Because we believe this work is culturally important, we have made it available as part of our commitment for protecting, preserving, and promoting the world's literature in affordable, high quality, modern editions that are true to the original work.

Genres: Economics, Finance, Money, Nonfiction

264 pages, Hardcover

First published January 1, 1928

About the author

Irving Fisher was an American economist, inventor, and social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt deflation has been embraced by the Post-Keynesian school.
Fisher made important contributions to utility theory and general equilibrium. He was also a pioneer in the rigurous study of intertemporal choice in markets, which led him to develop a theory of capital and interest rates.[4] His research on the quantity theory of money inaugurated the school of macroeconomic thought known as "monetarism." Both James Tobin and Milton Friedman called Fisher "the greatest economist the United States has ever produced."
Fisher was perhaps the first celebrity economist, but his reputation during his lifetime was irreparably harmed by his public statements, just prior to the Wall Street Crash of 1929, claiming that the stock market had reached "a permanently high plateau." His subsequent theory of debt deflation as an explanation of the Great Depression was largely ignored in favor of the work of John Maynard Keynes. His reputation has since recovered in neoclassical economics, particularly after his work was revived in the late 1950s and more widely due to an increased interest in debt deflation in the Late-2000s recession. Some concepts named after Fisher include the Fisher equation, the Fisher hypothesis, the international Fisher effect, and the Fisher separation theorem.

Reviews

[Clif · Rating 4 out of 5]

This quick read was written by Irving Fisher in the 1920's prior to the Crash.

Intended to inform the public about the danger of thinking that a dollar is something fixed, this book describes inflation and deflation in a clear, understandable way. Fisher was not a gold bug and writes, quite rightly, that there is no magic in gold, it fluctuates in value like anything else.

The only way to properly assess value is to price a selection of commonly purchased items to create an index that can be tracked over the years. This is the basis of the CPI or Consumer Price Index of today.

The book describes how inflation is the debtor's friend, because a loan is paid back in a specific number of dollars. If those dollars become less valuable over the length of the pay back period, one ends up paying back less than what was borrowed. Deflation is the creditor's friend for the reason that dollars being repaid are worth more than when they were loaned.

This is basic financial knowledge, yet as far as I know, it is never covered in any required course through the end of high school. This is inexcusable in a country that is the heartland of capitalism. Ignorance of how money works, of how loans are made and paid off, puts any citizen at a real disadvantage, ready to be victimized by those who know exactly what happens with inflation and deflation and invest accordingly.

At the time Fisher wrote, the Federal Reserve was newborn and there were high hopes for it to regulate inflation and prevent cyclical booms and busts. Predictably, since the Fed is a creature of the private banking system and not a department of the government, the board that directs the Fed has routinely gone along with easy money because of the terrific profits it can bring the banks. We've all heard of how Alan Greenspan waited until it was too late in raising interest rates. A huge bubble in housing prices, inflated by irresponsible lending, exploded, almost bringing down the banking system, were it not for Uncle Sam rushing in to use taxpayer money to accept the worthless holdings of the banks. When it came down to it, the system protected the system, not the American people. The remarkable thing is that people were surprised by what the Fed did, clearly showing they hadn't a clue about the organization, and that is precisely the intent of the name "Federal Reserve" - to hide what is a national bank run by banks for banks. But that is a tale for another book review.

Anyone not familiar with the world of money should read this book. Fisher has written others, all intended for the education of the layman. All are good solid references easy to digest.

[Pedro Almeida Jorge · Rating 2 out of 5]

good: shows that sometimes having more money is an illusion as the prices of goods rise even higher.

bad: provides the grounds for the theories of stabilizing the price level, which are most to blame for our current situation world-wide

[João Rodrigues · Rating 4 out of 5]

Irving Fisher, atormentado pela indiferença dos seus contemporâneos, escreveu este manifesto científico sobre a Moeda e sua natureza. Os cidadãos, as empresas e os próprios Estado gerem o presente e preparam o futuro com base numa mercadoria, a que chamam Moeda, que tanto pode ser areia como pode ser ouro, dependendo de caprichos cíclicos aparentemente insondáveis. Noventa anos depois, uma obra que se mantém atual no mundo dos Bancos Centrais e suas impressoras.

[John · Rating 4 out of 5]

This started out so basic that I considered quitting. He gets more technical as the text progresses. I think this would be most interesting for people interested in the history of monetary theory. So, I enjoyed it, but I can't think of anyone off the top of my head to whom I would recommend it.

[Almir · Rating 3 out of 5]

http://imeducatingmyself.com/the-mone...

First of all, this book is a short history lesson. Basically, everything in this book it’s involved around World War I and time before the war, and short period after the war. Only thing, in my opinion, that could be applied for today’s time, is that people still don’t understand the thing that Irving had written in his book, and that is Inflation and Deflation of the money.

Like I’ve mention in previous section, this book is all about Inflation and Deflation of the money, backing up value of the money with gold, and other general ideas that Irving presented how to keep economy going forward.

I like to read articles and book that are related to History of economics, because there’s a lot that can be learned from past, that can be used in present time and future. Because, many things are happening over and over again, and we if educate our self enough about the past, we can avoid to be one of those who repeat the history.

There is a section where it’s talking generally how war is affecting and destroying economies and states. But, also it’s talking how these kind of problems are happening during the peace, that can be related to Financial crisis.

First part of the book talks about Inflation and Deflation, and in the second part Irving has presented his ideas on how Government should act on such a problem.

I didn’t learned anything new, because I was already aware of the Inflation and Deflation of the money. But if you’re not familiar with this subject, then you go ahead and read this book.

I was scrolling through the list of books on Amazon, and I was attracted by the title of the book, and I think that majority of the people who read it done it the same.

As for the, would I recommend you to read this book, or wouldn’t I recommend you to read it. To be honest, my opinion is divided and I don’t like to trash on other peoples work. So, if you like a short history lesson, then go ahead and read this book.. Otherwise, just continue to another book and read something else, it’s completely up to you.

You can buy this book by clicking the link bellow. Since I’m a part of the Amazon’s Associates program, when you buy through this link you help me earn a commission. That will help me to buy more books and write more reviews. Thank you!

[Bonnie · Rating 5 out of 5]

Fisher's work on money illusion remains relevant today, contributing to our understanding of economic behavior and informing policy discussions on inflation, wage adjustments, and debt management.

The main concept in this book argues that individuals often fall prey to the illusion that nominal changes in income or wealth represent actual gains or losses, overlooking the impact of inflation on purchasing power. This can lead to various economic distortions, including:

Wage rigidity: Workers might accept nominal wage increases that don't keep pace with inflation, effectively experiencing decreased real income.

Debt deflation: Borrowers benefit as inflation erodes the real value of their debt, while lenders suffer losses.

Business cycle fluctuations: Money illusion can contribute to boom-bust cycles, as individuals misinterpret nominal changes in prices and activity for real ones.

Consequences of Money Illusion
can lead to:
Reduced economic efficiency
Social unrest
Macroeconomic instability

Combating Money Illusion:
Education and awareness (Increasing public understanding of inflation and its impact on purchasing power can help individuals make informed decisions.)

Indexing contracts (Adjusting wages, debts, and other contracts to automatically reflect inflation can mitigate its distorting effects.)

Stable monetary policy (Maintaining price stability through sound monetary policy can minimize the incidence of inflation and reduce the scope for money illusion.)

[Skywalker Hu · Rating 5 out of 5]

Very revealing book...although some on of the discussions regarding the gold bullion and the gold standard seem to be outdated, it remains a problem for readers to find out how the monetary system has evolved in the last ~100 years. Now most of the countries have adopted a fiat currency. I really need to fill the gap (through some economic history books) between the transformation from Fisher's era to our current era.

[Leonardo]

Entiendo que es uno de los primeros en hablar de Ilusión Monetaria.
Comentado en Animal Spirits

[Susan J Benna · Rating 4 out of 5]

Nice Summary

While the book is dated, many of the concepts hold true today. Interesting discussion on methods to implement a Gold Standard program. Unfortunately, with wild Liberal fiscal spending, these concepts are all but dead.

[Brazpinto.joao · Rating 5 out of 5]

A landmark book for any economist.

[Rúben · Rating 4 out of 5]

Must have been an impactful book when it was released. Some of the lessons do not seem relevant anymore, but has a good basic analysis of inflation and deflation. Recommended for everyone that proposes a return to a gold standard.

[Nael · Rating 5 out of 5]

what gives this book (which is based on lectures given in the summer of 1927 before the Geneva school of International Studies) the taste it has is Irvings linguistic strengths, knowledge and good faith.
usually books about economics are very dry, language of the numbers, a lifeless emotionless books that talks about a dry subject for those who are not intrigued by economics, but somehow, Irving Fisher managed to make this book a one of a kind, I can say that this is a great literature amazingly written and very very informative, true it is very outdated, but it will give you the basics you need to understand about inflation, and the unstable value of currencies that we are usually blinded by its supposedly stable values.
not a word or a sentence in this book not well chosen or not for a reason.

from A-Z the book flows information into your mind in an easy understandable language.
Aside from that Irving is an academic so he knows that to explain a point you start from a very low level, so the book starts very easy like a first class in a course, then by the end it increases in its complexity but in a way that you can understand and admire..

its like he managed to understand the general mental capabilities and based this book on that level.

whats striking in this book is that he deals with money unstable value (Inflation and Deflation) as an entity by it self, referring to it as evil and social injustice as if it needs to be jailed.
having ethics as the theme behind every economy, he deals with all issues in terms of insuring ethical values and justice before dealing with the rest of the following issues regarding a particular problem.

Overall a very interesting book...don't hesitate

[Gregg Wingo · Rating 5 out of 5]

This book represents Fisher's seminal work on money and his recognition as the father of the economic school of Monetarism. In "The Money Illusion" he lays out the nature of money in a modern society and speaks to the false security of gold or any other standard to the "value" of money. He explains clearly the effects of deflation and inflation on currencies and emphasizes the importance of government and their monetary authorities in acting to stabilize their effects through responsible governance of the currency.

Fisher explains and advocates for the integration of the banking system into the Federal Reserve System specifically in the US and generally in all economies. He also recognize that the Fed is already acting as the primary counterbalance on the world economy in 1928 presaging Milton Friedman's critique of the Fed's behavior and incompetence in dealing with the Great Depression.

During the discussion on the gold standard Fisher while not rejecting it does illustrate that it will not provide stability and actually will become a limit as the economy outgrows the physical quantities available on the planet. If the currency is to have a gold basis then he advocates that production of gold should be as strongly regulated as the production of currency by governments and not be left in the hands of individuals or corporations.

The work clearly is the culmination of his early career as a neoclassical economist and lays the foundation for both Monetarism and his future work on debt deflation theory. It is a critical read for both neoclassical and heterodox followers of economics.

[Ray · Rating 4 out of 5]

Irving Fisher may be better remembered for some highly mistaken predictions of good times just before the market crash in 1929. Yet his was a life that well demonstrated the economist's caution: If you make predictions, be certain they outlive you. Irving Fisher despite all the derision he suffered was a shrewd analyst of how money disguises how money as a denominator of value conceals the important reality of economic life.

Not great reading as lectures seldom are. This small pamphlet-like book, a series of lectures first given in Germany in 1927, contains cautionary insights into today's problems with the money supply.

[Asade Tolu · Rating 5 out of 5]

An old classic with the most simplest of explanation into the very complex matters of: inflation, deflation, falling store of value as it pertains to money. It might be old but very, very useful.

[Mostafa · Rating 5 out of 5]

if you need to know the real meaning of inflation

read this book