Sat. Mar 2nd, 2024

Delving into the theories and contributions of David Hume, Irving Fisher, and Milton Friedman

When it comes to determining the greatest economist of all time, Tyler Cowen argues that the journey matters more than the destination. While this debate rages on, let us focus on a more specific question: who is the greatest macroeconomist in history? Macroeconomics encompasses the study of long-term economic growth, inflation, and short-term changes in output and employment. In this article, we will explore the theories and contributions of three economists who have made significant strides in the field: David Hume, Irving Fisher, and Milton Friedman.

David Hume’s Pioneering Insights

David Hume, an economist from the mid-1700s, developed two fundamental models that laid the groundwork for macroeconomics. In Model #1, Hume argued that changes in the supply and demand for money determine nominal aggregates such as the price level and NGDP. He recognized that in the long run, an increase in the money supply leads to proportional changes in prices. Similarly, a decrease in money demand reduces prices and NGDP. Hume’s Model #2 focused on the short run, where he observed that nominal shocks, such as changes in the money supply, also impact employment and output. Hume’s insights were ahead of his time and laid the foundation for future macroeconomic theories.

Irving Fisher’s Contributions

Irving Fisher, a prominent economist of the early 20th century, made significant contributions to the field of macroeconomics. Fisher’s work extended Hume’s models and delved into the quantitative aspects of money and macro. He introduced the Fisher equation, which states that the nominal interest rate is equal to the real interest rate plus expected inflation. This equation provided a framework for understanding the relationship between interest rates, inflation, and the economy. Fisher also explored the Phillips Curve, which shows the correlation between employment/output and inflation. His analysis preceded the recognition of this relationship by economists for several decades. Fisher’s insights and his extensive research on various facets of money and macro solidify his place as one of the greatest macroeconomists.

Milton Friedman and the Natural Rate Hypothesis

Milton Friedman, a renowned economist of the 20th century, added another layer to Hume and Fisher’s models with his Natural Rate Hypothesis. This hypothesis, developed independently by Friedman and Phelps, posits that in the long run, changes in the rate of inflation impact employment and output. Friedman’s work was particularly influential during a time when Keynesian theory dominated macroeconomics. He revived the quantity theory of money, adapted it for a fiat money world, and demonstrated its accuracy in predicting inflation. Friedman’s empirical research, particularly his co-authored book “The Monetary History,” solidified his position as one of the greatest macroeconomists.


In the realm of macroeconomics, the journey of understanding the intricacies of money and macro is filled with brilliant minds and groundbreaking theories. While David Hume laid the foundation with his pioneering insights, Irving Fisher expanded on those theories and delved into the quantitative aspects of money and macro. Milton Friedman, building on the work of his predecessors, introduced the Natural Rate Hypothesis and revived the quantity theory of money in a fiat money world. These three economists, each with their unique contributions, have left an indelible mark on the field of macroeconomics and can be considered contenders for the title of the greatest macroeconomist of all time.

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