Grand Pursuit

by Sylvia Nasar

  Despite the hectic pace of his travels, Fisher still had plenty of time to attend the lectures of the mathematician Henri Poincaré in Paris and the German physicist Hermann Ludwig von Helmholtz in Berlin. When northern Europe got too cold for his now pregnant bride, he hired another student to take notes for him and took her to the French Riviera. Hiking in the Alps alone, he experienced an epiphany as he watched water tumble over rocks and gather in a pool below. “It suddenly occurred to me that while looking at a watering trough with its in-flow and out-flow, that the basic distinction needed to differentiate capital and income was substantially the same as the distinction between the water in that trough and the flow out of it.”47 After Fisher gave a talk at Oxford, Edgeworth told Margie, who had joined her husband, “Professor Fisher is soaring.”48

  • • •

  By the time Fisher and his wife returned to New Haven and a brand-new, fully furnished mansion, thoughtfully provided by the Hazards, the mood of the nation was grim. By 1895, more than five hundred banks had failed. Fifteen thousand companies had declared bankruptcy. Unemployment had idled one in seven workers.49 The fiery blast furnaces and behemoth textile mills were still standing, the vast railroads were still capable of hauling freight, and the prairies were still golden with wheat and corn. Yet amid this potential feast, there was a kind of famine. “Never within my memory have so many people literally starved to death as in the past few months,” a Reverend T. De Witt Talmage told his congregation. “Have you noticed in the newspapers how many men and women here and there have been found dead, the post mortem examination stating that the cause of the death was hunger?”50

  Popular anger against “money men” was ubiquitous. James J. Hill, the founder of the Great Northern Railway, wrote to a friend that “lately the people of the country are fixing their minds on social questions . . . For ten years it has been ‘railroads, monopolies and trusts’ but now it shows up as those who have nothing against those who have something.”51 That year, a melodrama by Charles T. Dazey called The War of Wealth opened on Broadway.

  The depression aggravated longstanding social and political conflicts. These were not primarily between classes: the 1894 Pullman strike notwithstanding, the number of strikes had drifted down each year. Rather, they were clashes between regions, between the representatives of different industries, between small and big business. Western silver miners blamed the collapse of metal prices on Washington. Farmers blamed their debt troubles on voracious eastern bankers and pitiless railroad monopolies. Of all constituencies, they were the angriest. The boom had passed them by, and the bust was driving them to despair. Amid a general slide in prices, those of wheat and corn and sugar had plunged two and three times more, on average, than other prices. Everyone connected with agriculture was drowning in debt, oppressed by high interest rates, and terrified of foreclosure.

  The presidential campaign of 1896 became a referendum on the country’s economic direction. The Democratic incumbent, Grover Cleveland, was repudiated by his own party. William Jennings Bryan, the thirty-six-year-old Democratic nominee, promised his western constituents that he would “nationalize the railroads, sweep away the tariff, and, most of all, rid them of financial tyranny.” He called eastern bankers “the most merciless unscrupulous gang of speculators on earth,” the “money monopoly.”52 His critics returned the compliment by calling him an anarchist, a Benedict Arnold, an Antichrist, “a mouthing, slobbering demagogue.”53 His Republican opponent, handpicked by James J. Hill and other tycoons, was William McKinley.

  Six weeks before the election, Bryan had already nailed Wall Street onto his cross of gold when he took his presidential campaign up to the doors of one of the Jerichos of money power. At Yale University on the first day of the fall semester, the “Great Commoner” faced one thousand undergraduates and professors. Wild boos and cheers erupted as soon as the handsome bear of a man with flowing dark hair wearing a black felt hat and a string tie mounted the platform.

  “The great paramount issue” of the 1896 election, he told them, was the seemingly obscure question of the nation’s monetary standard. In a deep, slightly hoarse voice, Bryan inveighed against “a gold standard which starves everybody except the money changer and the money owner.” The embrace of gold in the 1873 act banning the free coinage of silver had produced a money drought that he said was far more devastating to the nation’s biggest industry, agriculture, than any act of nature. “If you make money scarce you make money dear,” Bryan told the crowd. “If you make money dear you drive down the value of everything and when you have falling prices you have hard times.”54

  According to Bryan, the only way to revive the economy was to make money cheap again, that is, by tying the dollar to a more expansive standard than gold “that permits the nation to grow.” He accused McKinley, and the “Gold Democrats” who supported him, of perversely trying to restore prosperity by continuing the disastrous “sound money” policies of the Democratic incumbent. In the fourth year of the depression, McKinley and the sound money clubs his supporters had organized were more worried about inflation and the London money market than the suffering at home. What was bad for the farmer was bad for America, including its small businessmen, professionals, and factory workers—and the students of New Haven. If the silver standard could ruin businessmen “with more rapidity than the gold standard has ruined them, my friends, it will be bad indeed,” Bryan told the crowd, adding that the political “party that declares for a gold standard in substance declares for a continuation of hard times.”55

  At the mention of the Republican Party, the students began yelling, jeering, and bellowing McKinley’s name. Uncharacteristically, Bryan lost his temper: “I have been so used to talking to young men who earn their own living,” he shouted, “I hardly know what language to use to address myself to those who desire to be known, not as creators of wealth, but as the distributers of wealth which somebody else created.”56 A sophomore later recalled Bryan’s next words, later denied by the candidate: “Ninety-nine out of a hundred students in this university are sons of the idle rich.” The word ninety-nine had the effect of a starter gun at a race. “Ninety-Nine! Nine, Nine, Ninety-Nine!” the class of ’99 chanted until Bryan abandoned the stage in disgust, leaving the money changers still in possession of their temple.57 The New York Times crowed the next day: “YALE WOULD NOT LISTEN; Derisive Applause and a Brass Band Too Much for the Boy Orator—He Spoke Only About Twenty Minutes and Retired in Disgust.”58

  • • •

  “I was never so morally aroused, I think, as against the ‘silver craze,’” Irving Fisher confided to his friend Will Eliot in a letter.59 “Social science is very immature and . . . it will be a very long time before it reaches the “therapeutic stage.”60

  Fisher had recently switched from Yale’s Department of Mathematics to its Department of Political Economy, largely out of a desire to “make direct contact with the living age,” although he privately was of the opinion that its members were “eaten with conceit” and overly confident that they knew how to fix the world’s ills. He was as trim and upright as ever, keeping in shape with a regular regimen of jogging, rowing, and swimming, and was unflaggingly energetic. The only mark of time’s passage was blindness in his left eye, the unhappy consequence of a squash accident.61

  Fisher had few strong political convictions but found that, as a professor, “I am expected to have an opinion.”62 Misguided reform was likely to make matters worse, he warned. Sumner had expressed profound misgivings about populist measures in a pamphlet provocatively titled The Absurd Effort to Make the World Over.63 In the depression that followed the panic of 1893, Fisher had written to his friend Will:

  Concerning social reform, I feel that the effort of philanthropists to apply therapeutics too soon is more likely to lead to evil than good. The very best the exhorter can do is to work against the “something must be done” spirit, and beg us to wait patiently until we know enough to base action upon and meantime confi
ne philanthropic endeavor to the narrow limits in which it has been proved successful—chiefly education . . . There is so much specific reform at hand to be done—in city government, suppression of vice, education—that the hard workers of humanity need not and ought not talk, until “little” things are done, on broad schemes for “society.”64

  As it turned out, Fisher did not follow his own advice. At a meeting of the American Economic Association in November 1895, he was scandalized at the “too lighthearted way” that some of his colleagues were willing to “tamper with the currency” and delivered a stinging critique of the silverite argument. “The effect of bimetallism, if silver is the cheaper metal, must be a depreciation of the currency. . . . A system whose claim to recognition is based on considerations of justice has no excuse when beginning with such a glaring injustice. Honest men must regard with horror the proposal to reintroduce a ratio of 151/2 to 1.” Not surprisingly, the speech attracted the gratified attention of the anti-Bryan forces. Fisher let himself be recruited to the New York Reform Club’s sound money committee and the anti-Bryan campaign.65

  • • •

  How money became the paramount issue of the 1896 presidential campaign requires some explanation. Historically, money had been seen as powerful, desirable, very likely evil, and mysterious, like natural calamities or epidemics. Interest was traditionally treated with hostility by Christianity as well as by Islam. Financial crises—from stock market crashes, to bank runs, to hyperinflations—sparked popular rage against bankers. The subject was shrouded in myth, superstition, and emotion.

  In the 1880s and 1890s, both sides in the populist debate mythologized their metal of choice and demonized their opponents. The evil speculator became a stock figure of fiction in the 1880s, his way paved by the Nibelungs in Richard Wagner’s opera The Ring of the Nibelungs and Auguste Melmotte in Anthony Trollope’s novel The Way We Live Now. The historian Harold James comments:

  The stories that the nineteenth century told about the global world built on a secular concept of original sin. The remedy that many thinkers then provided to the illegitimacy of the system echoed Luther’s quite precisely (in a secular manner). Strong public authority was needed to overcome the legacy of that sin. There was a natural community that had been broken apart by creative greed, but the state could create its own order and community, and thus channel the destructive forces of dynamic capitalism. This strategy would offer the only way of avoiding the apocalyptic crisis prophesied by a Marx or Wagner or a Lord Salisbury.”66

  American economists were always more obsessed by “the money question” than their English counterparts were. But this was largely an accident of history, resulting partly from long-standing American suspicion of federal power and partly from the decision to issue unconvertible greenbacks during the Civil War and to allow them to be redeemed for gold twenty years later. More compelling, bank runs, financial panics, crises, and depressions occurred with dangerous frequency. The English financial writer Bagehot had observed in 1873:

  It is of great importance to point out that our industrial organisation is liable not only to irregular external accidents, but likewise to regular internal changes; that these changes make our credit system much more delicate at some times than at others; and that it is the recurrence of these periodical seasons of delicacy which has given rise to the notion that panics come according to a fixed rule—that every ten years or so we must have one of them.67

  In the face of such traditional fatalism, it seems entirely plausible that an idealistic young scientist protested that the real problem was that money had not been sufficiently or rigorously studied and that a better understanding of money’s role in economic affairs would minimize irrational decisions and unnecessary conflicts.

  In his PhD thesis, which had been published in 1892, Fisher commented that “money, which is used to measure value and therefore affects all perception of economic values, is little studied and the mystery that surrounds money is at the root of many misunderstandings and miscalculations.” Although the focus in that investigation was how prices were “computed” through the interaction of supply and demand, Fisher treated money first and foremost as a unit of measurement. The gold standard was a primitive mechanism for tying down its value. But even as he wrote his thesis, he developed a potentially better way. He saw that it might be possible to stabilize prices by tying the dollar’s value in terms of gold to an index of consumer prices. Fisher saw equilibrium as a reference point and monetary disturbances as the source of instability. In Mathematical Investigations, he stressed that “the ideal statical condition assumed in our analysis is never satisfied in fact,” which convinced him that “panics show a lack of equilibrium.”68

  Interest is the price that those with savings charge to let others use their capital, a real and valuable service. The value of capital, in turn, is determined by expectations on the part of savers and investors about the future stream of interest payments. Inflation and deflation produce large and arbitrary shifts in income and are the effects of the fluctuating value of the monetary standard—a rubber yardstick rather than a constant one—not conspiracies by demagogues and mobs on the one hand or Wall Street bankers on the other.

  Having come to economics via the monetary debates that dominated American politics in the 1880s and 1890s, Fisher was concerned primarily with justice for debtors and lenders and with avoiding social conflicts that were exacerbated by unexpected changes in the value of money. As a practical matter, it was difficult for an individual businessman to distinguish between a change in the price of his product and an overall rise or fall in prices, and to adjust his contracts accordingly. Citizens who didn’t understand that the value of their currency wasn’t fixed tended to blame scapegoats—easterners, Jews, foreigners—for inflation or deflation.

  The United States had followed Britain, Germany, and France by adopting the gold standard—a system in which each country’s currency is pegged to a fixed amount of gold and hence to fixed amounts of other currencies. Think of it as a single world currency, the existence of which is a great convenience to those engaged in exporting and importing. Kansas farmers who sold wheat to British merchants wanted dollars with which to pay the men, railroads, seed suppliers, and so forth. So the British merchants were obliged to buy dollars with pounds. Obviously, knowing that £1 can always be exchanged for $5 is the next best thing, from the point of view of the importer, to a single currency.

  Unfortunately, fixing exchange rates did not mean, as many supposed, that the value of the currency in terms of domestic goods was constant. Indeed, while the United States pegged the dollar to a certain amount of gold, the gold’s and therefore the dollar’s domestic purchasing power fluctuated by as much as 50 or 100 percent. In the 1880s the dollar’s value rose sharply as a result of a worldwide shortage of gold, producing price deflation and a raging debate between those who wanted to remain on the gold standard and those who wanted to return to a silver standard.

  American farmers, who tended to speculate in land and to use mortgages to finance land purchases, were net debtors. They argued that maintaining gold parity had restricted the supply of money and caused interest rates to rise and crop prices and farm income to fall. That meant that more tons of corn or wheat or bales of cotton were needed to pay off or service a given amount of debt than the farmer or bank had anticipated when the mortgage was issued. Fisher had some firsthand knowledge of western farming, thanks to his friendships with the sons of Missouri farmers during his two years in St. Louis and his summer jobs on their farms during college.

  The free-silver movement reached its apogee in William Jennings Bryan’s presidential campaign of 1896, and so did Fisher’s defense of the gold standard. His monograph Appreciation and Interest had just been published. For him, the issue was distributive justice. Fisher conceded that the “silverites” were right in claiming that deflation had enriched lenders at the expense of debtors. But the argument for switching to a silver standard was f
aulty all the same. In fact, he claimed, declining interest rates automatically offset the rise in the real value of their debt. The market compensated . . . Bryan lost the election. Ironically, right around the time of his “Cross of Gold” speech, gold discoveries and other developments produced a spurt in the gold supply and led to a monetary expansion that brought the deflation of the 1880s and 1890s to an end without the United States abandoning the gold standard.

  • • •

  At thirty, Irving Fisher was the author of several books and monographs, a rising factor in the academic world, and the father of a growing family. He was stronger, handsomer, and more energetic than at twenty. He cycled, walked, and lifted weights. His favorite sport was swimming, and he let nothing—not even the chilly water off Maine or Margaret’s anxiety—keep him out of the water in the summer.

  In August 1899, Fisher was swimming off the family’s summer estate when he nearly drowned. In the weeks that followed, he developed lassitude, a low fever, and a deepening depression, symptoms ominously reminiscent of the initial signs of his father’s deadly illness. Shortly after his thirty-first birthday and his promotion to full professor, he received a death sentence in the form of a diagnosis of tuberculosis.

  Tuberculosis was the nineteenth-century AIDS, writes historian Katherine Ott. At the turn of the twentieth century, one in three deaths in major cities was due to consumption, and most of the victims of the “white plague” were young adults. The course of the illness was ghastly, and recovery rates were depressingly low. Victims dreaded the loss of work and ostracism that inevitably followed a positive diagnosis. One man wrote that when the doctor told him it was tuberculosis, the words “might just as well have been followed by ‘The Lord have mercy on your soul,’ ” for he felt himself a dead man.69 Fisher remembered his dying father, shrunken and skeletal, totally deaf, unable to swallow anything but driblets of milk and barely capable of speech. George Fisher had lingered in this state for several agonizing weeks. When he died he was just fifty-three.