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I. Fisher - I Discovered the Phillips Curve

I. Fisher - I Discovered the Phillips Curve

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I Discovered the Phillips Curve: "A Statistical Relation between Unemployment and PriceChanges"Author(s): Irving FisherSource:
The Journal of Political Economy,
Vol. 81, No. 2, Part 1 (Mar. - Apr., 1973), pp. 496-502Published by: The University of Chicago PressStable URL:
Accessed: 06/11/2008 12:56
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LostandFoundIDiscoveredthePhillips Curve
is notgenerallyknownthatthe first statisticalin-vestigationof therelationshipbetweeninflation and theunemploymentratewasperformednot byA. W.Phillips in1958 butby IrvingFisher in1926. The editorsarepleased tocelebrate theforty-seventhanniversaryofFisher'sseminaldiscovery byreprintingt initsentirety (bypermissionofthe InternationalLabourReview).They are grateful to ProfessorJacobMincer ofColumbiaUniversity, whoaccidentallydiscovered iton arecentarchaeologicalexpedition.(Thearticlewasindependently discoveredbyA.Donner andJ. F.McCallum,who cited it intheir "ThePhillips Curve:An HistoricalNote,"Economica[August1972],pp.322-23.)
AStatistical RelationbetweenUnemploymentandPriceChanges
ProfessorIrving Fisher
Professor ofEconomics,Yale University
The possiblerelationbetween changesin thepricelevel andchanges inthevolume ofemployment, muchdiscussed byeconomists at thepresenttime,has alreadybeendebated in thepages ofthe Review. InthepresentarticleProfessorFisher,one of theforemostauthorities onmonetaryproblemsand foryears aprotagonist ofstabilisation,removesthe questionfromthe sphere ofcontroversy to that ofexactstatisticalresearch. Hehasfounda remarkablyhighcorrelationbetween therate of pricechangesandemployment,and hedescribes themethods bywhich hehas achievedthisresult. Thedata usedreferexclusively to theUnitedStates, andfurtherresearchwould berequiredbefore theconclusionscouldbeapplieddirectlyto othercountries.Nevertheless, thisobjectivestatisticalconfirmationof arelationlongasserted toexist is ahighlyimportant step inadvance.
FromInternationalLabourReview 13, no.6(June 1926):785-92.
In amatteras intenselyhumanas theemploymentproblemit seemsafar cry frommoneyandbankingtoanexplanationofwhy workingmenarethrown out ofjobs.And yet,inthesignificantperiod1915-1925,analysisshowsa Pearsoniancorrelation ashigh as90per cent,betweenthe rate ofchangeinthe valueof thedollarandunemploymentintheUnited States.Thefactthatdeflationcausesunemploymenthasbeen wellrecognisedformany yearsinisolatedinstances, suchasthe greatdeflationof 1921inAmericaor thecorrespondingpost-war deflationinGreat Britain, Czecho-slovakia,orNorway. It haslikewise beenrecognisedthatinflationcarrieswithit agreatstimulationtotradeand anincreaseinemployment (ordecreaseinunemployment).Andyet, strangeas itmay seem,whenappliedtotheso-called"businesscycle",theserelationshipshavebeenalmostwhollyoverlooked.When,for instance,Mr.Hooverhadhiscommitteeofexpertsstudyunemploymentandmake a report to himthreeyearsago,almosteveryotherfactorthat mightinfluenceemploymentwasgivencarefulconsideration,butreferences toinflation anddeflationwerealmostwhollyabsent'.Itwouldalso seem thatmanyeconomistsandstatisticiansascribe asortoffatalistic nature totheso-calledbusinesscycle. At anyrate, whenstudy-ing thisebbandflow of the tidesofbusiness andindustry, they seemtoforgettogiveanyseriousconsiderationto inflationanddeflation. In con-sequence we havetheanomaly that,while it isacommonplacethatlong-continued orsharpinflationor deflationwillbe reflected inthefigures ofemploymentorunemployment,nevertheless,when itcomes tothe alter-nationof what iscalled(or miscalled)"thebusinesscycle"-booms anddepressions in trade,timesof fullemployment and greatunemployment,occurringinrapidsuccession-therelation of thesephenomena tomoneyandbanking islargely forgotten.Having beeninterested formanyyears in all theeffectsof changesinthepurchasingpower ofthe dollar-inotherwords, inchanges inthegenerallevel ofprices-Ihavelong studied theeffects of thosechangesonemployment,asrevealed bystatistics.During thelastthree yearsinparticularIhave hadat least onecomputer in myofficealmostconstantlyatwork onthisproblem, andhavemade reports ofprogress atvariousmeetingsoftheAmericanStatisticalAssociation. Last Juneafinal reportwasmade, onthe effect ofchanges in thepurchasingpower ofthedollarontheso-called businesscycle2.Whatisherepresented islargelybased on thatreport,buthasspecialreference tounemployment.In thatreport acorrelationwasfound even
BusinessCyclesandUnemployment. NewYork,McGraw-HillBook Co.,1923.
405pp. Cf.pp.270-271:"ProposalstoStabilise theDollar".
"OurUnstableDollarand theSo-calledBusinessCycle",inJournaloftheAmericanStatisticalAssociation, June1925, pp.179-202.

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