12 - Learning from models

Summary

Modern economics is dominated by modelling. For professional economists and students alike, the practice of economics is based around the activity of building and manipulating models of the economy. Even at the earliest stage of study, the use of models forms the basic method of instruction. Economists learn from this modelling method. But what do they learn? What is the process? And what conditions need to be fulfilled for such learning to take place? In order to see what models do, and how they can teach us things, we have to understand the details of their construction and usage. To explore these questions, this essay takes as case study material two models of the monetary system by Irving Fisher (1867–1947), one of the pioneers of scientific model building in economics.

IRVING FISHER AND HIS CONTEXTS

The contemporary economic view of money

‘Money’, and in particular the economic laws and government responsibilities which governed its value, formed the most important economic question in America in the 1890s, the time when Irving Fisher took up economics seriously. The institutional arrangements for controlling money were bitterly fought over in the political arena, forming a key element in the presidential and congressional elections of 1892 and more so in 1896, when the farmers rallied behind the political slogan that they were being ‘crucified on a cross of gold’. These arguments necessarily entailed discussions of monetary theory and beliefs about economic laws, and many reputable American economists wrote books about the theory, institutional and empirical aspects of money in the period of the 1890s and 1900s.