Marginal Revolution: Economists who revolutionized macroeconomics

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Economists who revolutionized macroeconomics

This list is from my lecture Monday night:

David Hume: His essay on money, circa 1752, remains one of the best writings on the topic. Honorable mention goes to Isaac Gervaise, who in 1734 outlined international mechanisms of adjustment.

Adam Smith: Growth is everything, no?

Thomas Malthus: A much underrated macroeconomist. He grasped aggregate demand, and price-cost margins, not to mention the importance of demographics.

David Ricardo: Not an original macroeconomist, but he showed you could apply the quantity theory of money to the policy issues of the day.

Henry Thornton: Super-smart, he integrated the best of all previous macroeconomics without making an error. He didn't have much influence until Wicksell and the Austrians, however.

Knut Wicksell: He showed it was possible to have an integrated analysis of the real and monetary sectors of the economy. He also anticipated about 90 percent of modern real business cycle theory.

John Maynard Keynes: If you want another perspective on him, read his monetarist Tract on Monetary Reform, or Essays in Biography, both masterpieces.

Milton Friedman: Many of his most important ideas were a resurrection of previous wisdom, most of all from Irving Fisher, but his practical influence has been vast.

The 1979-1990 Theory Boom: We applied every idea in the toolbox -- from game theory to adverse selection to imperfect competition -- to macroeconomics. But who gets the credit?

Next on the horizon: ????? When it comes to high theory, we live in slow times.

Dark horse pick: Friedrich Hayek (or is it Mises?); even Paul Krugman is borrowing his ideas.

Addendum: Wesley Clair Mitchell also deserves mention, and read the second comment below for other names.

Posted by Tyler Cowen on August 31, 2005 at 07:50 AM in Economics, History | Permalink

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Why you have forged Henry Fords, Ray Croch, Bill GAtes.
They also man who changes the worlds of economicst thinker.

Posted by: donny tedjo at Aug 31, 2005 10:06:31 AM

Heroes:

John Graunt (1620-1674)[!] Can be regarded as the author of the first book on statistics, 'Natural and Political Observations Upon the Bills of Mortality' in 1662. The Bills of Mortality mentioned in the title refer to the collections of mortality figures in London. London had suffered from plague outbreaks at intervals and the King wanted to use an early-warning system of the threat of fresh outbreaks. Weekly records were kept of mortality and the causes of death in the capital. On the basis of these Bills, Graunt made an estimate of the population of London. This is thought of as the first example of the interpretation of passive data and the beginnings of what is now called 'statistics'. Most importantly, Graunt checked his calculations of total population by going to the evidence. He took three parishes as representative samples. This again, was a revolutionary step.

William Petty (1623-1687) [!] Friend of John Graunt, proposed the setting-up of a central statistical office for the English crown, and made estimates of the sum of England's wealth. In working to produce what we call today a national income analysis, he made the revolutionary step of assuming that national income was the same as total national consumption. Made estimations of loss to the national economy resulting from plague death. Suggested that modest expenditure by the state to prevent deaths from plague would produce substantial economic benefits.

People who I think could have made it on the list: Robert Lucas, Robert Solow, and Joseph Schumpeter.

Source:
http://www.bized.ac.uk/timeweb/reference/statisticians.htm

Posted by: Michael Stastny at Aug 31, 2005 10:12:14 AM

Thornton's ideas were far more advanced than those of Ricardo, but I would leave him off the list because he *did not* revolutionize macroeconomics, though he should have. For some reason, Thornton was forgotten after the mid 1800s; his book "An Enquiry into the Nature and Effects of the Paper Credit of Great Britain" didn't get a second printing for more than a century. Wicksell seems to have been unaware of Thornton. The same was the case a generation earlier with Walter Bagehot, who is often considered the father of modern central banking for his book "Lombard Street." Both might have gotten even further had they known of Thornton's work.

Somebody else who suffered the same fate as Thornton was John Law. I think he was the first to use "demand" as a term and idea in the sense economists still do today. His good theoretical ideas were discredited by the failure of his "Mississippi scheme," which caused a wrenching financial crisis.

John Stuart Mill deserves mention as the great synthesizer of economic theory, macroeconomic and microeconomic, as it existed in his time.

Schumpeter definitely deserves mention for his long-lasting influence in stressing the dynamic and unsettling nature of modern capitalism.

The "theory boom" produced no economist who combined depth of technical ideas with the broad vision of a Schumpeter, Keynes, Mises, Hayek, or Friedman. A few have tried to articulate the vision thing, but they do not approach the earlier peaks. The best of the bunch since 1970: Fischer Black?

Posted by: Kurt Schuler at Aug 31, 2005 12:52:53 PM

Reading Robert Higgs, I have come to think that the inter-related ideas of business confidence and regime certainty (sometimes also called regulatory certainty, and perhaps the best would be rules certainty) are crucial in understanding broad trends. Are you going to build a bicycled factory while the New Deal is in full swing and the rules are changing every year? Higgs' classic 1997 Independent Review piece shows that this is why private investment disappeared during FDR's reign, and resumed only when he was dead and buried. This is a very broad kind of macroeconomics. The idea of security of ownership of your property is very central to Adam Smith. Freedom and security. He notes security on at least 20 occasions. You could also say it is the heart of Hernando De Soto's macroeconomics.

Posted by: Daniel Klein at Aug 31, 2005 8:35:24 PM

Kuznets and Leontief, for heaven's sake.

Posted by: dsquared at Sep 1, 2005 2:49:42 AM

I vote strongly to include Jean-Baptiste Say (1767-1832) who developed, among other things, Say's Law (precursor to Walrasian General Equilibrium analysis), utility theory (when Smith-Ricardo-Malthus-Mill were clinging to the Labor Theory of Value), entrepreneurial theory (far better than subsequent work by Schumpeter or Kirzner)and imputation theory (that costs are determined by prices, not the other way around). J.B. Say was no mere "popularizer" of Adam Smith's doctrines, as is commonly claimed; indeed, he rejected many of them. And Say thoroughly decimated Malthus's inane claims about the causes of recessions. Finally, Say was the ultimate optimist, versus the pessimism (and bad forecasts) of Ricardo, Malthus and Marx, because, as a product of the Enlightenment, he believed in the productive power of reason. I believe Say is the most under-rated political economist in history. Fortunately, there's been a recent revival of academic interest in Say's work.

Posted by: Richard Salsman at Sep 1, 2005 3:37:49 PM

Posted by: Richard Salsman at Sep 1, 2005 3:38:58 PM

Ragnar Frisch and George Akerlof

Posted by: Barkley Rosser at Sep 5, 2005 3:23:19 PM

Yes.Keynes revolutionized macro and microeconomic theory in chapters 19(appendix to chapter 19),20,and 21 of his General Theory way back in 1936.Unfortunately,the only two mathematically literate macroeconomists at that time were A C Pigou and J M Keynes.Pigou presented what he thought was a general macroeconomic theory ,using rigorous mathematical exposition ,in Part II of his 1933 book, The Theory of Unemployment.The mathematical and theoretical core is contained in Part II,chapters 8-10,pp.86-102.All of Pigou's conclusions are presented in the form of elasticities.Pigou's major result is the same result accepted by all classical and neoclassical schools today[monetarist(excluding Brunner and Meltzer),rational expectationist,real business cycle,supplyside,Austrian].Full employment of all resources,including the necessary slack unemployment called frictional and voluntary,occurs if the following labor market equilibrium condition holds:w/p=mpl,where w is the money wage,p is the price level,w/p is the real wage,and mpl is the macroscopic marginal productivity of labor derived from an aggregated neoclassical production function.Given the assumptions made by Pigou,this condition means that the economy is operating at some point on the boundary of the static production possibilities frontier under resource scarcity.On pages 261-262 of the GT,Keynes twice specified the equation that was missing from Pigou's model-the mpc had to equal 1.If the capital stock was not at an optimal level,then the mpc+mpi had to equal 1.The mpc is the marginal propensity to spend on consumption goods and the mpi is the marginal propensity to spend on investment goods.Given the marginal propensity to save,mps,the neoclassical loanable funds theory can be expressed as mpc+mpi=mpc+mps=1.In chapters 20 and 21,Keynes derives his generalized results and presents them in the form of elasticities.The reason for this is obvious.Keynes wants to allow the technically trained reader of Pigou's book the opportunity to compare both of their results.One need only simplify the elasticity results.Unfortunately,no economist was able to do this.In chapter 20,the analysis of the commodity and labor markets is presented on pp.282-286(top).In chapter 21,the analysis is again presented ,with the money market added,on p.306.The bond market result automatically follows .Note that Keynes does not reject the quantity theory of money,but presents a generalized version of it. Keynes's general theory is given by the following generalized optimality condition-w/p=mpl/(mpc+mpi).A set of potential,stable multiple equilibria exists,only one of which is a full employment equilibrium.If the mpc+mpi<1,one of a number of involuntary unemployment equilibria will occur.It is impossible for labor,AS A WHOLE,to reduce or eliminate this type of unemployment by cutting their money wages since this would involve a violation of the necessary first and sufficient(decreasing returns) second order conditions for maximizing expected economic profit derived from a standard optimization problem under the assumption of purely competitive firms-industries.The reason Keynes gives for mpc+mpi usually being less than one is that employer-employee decision making, at both the micro and macro levels,is being undertaken under conditions of uncertainty(which is the same as D.Ellsberg's ambiguity)and/or ignorance,as opposed to risk or certainty equivalence.If mpc+mpi<1,the economy is operating at some point in the interior of the static production possibilities curve.The standard neoclassical microeconomic results,as presented by Pigou,can only be attained if this uncertainty(ambiguity)and ignorance can be mitigated,reduced,or eliminated.Note that Keynes's technical definition of Say's Law is that mpc+mpi=1.Keynes's brief,introductory comments in chapters 2 and 3,which were only meant to serve as a beginners guide to the GT,which include his literary description of Say's Law as"Supply creates its own Demand",has unfortunately been overemphasized by history of thought economists who lack the necessary training in the differential and integral calculus which is a necessary prerequisite for understanding both Pigou's The Theory of Unemployment and Keynes's The General Theory .Again,Keynes generalized Say's Law.He recognized it as a special case.

Posted by: Michael Emmett Brady at Nov 25, 2005 2:56:40 AM

Posted by: Michael Emmett Brady at Nov 25, 2005 2:57:36 AM

Malthus is never referred to as 'Thomas': he was always called 'Robert' by his family ('Bob' by his parenmts); signed himself 'T. Robt Malthus' and is usually referrred to in the literature as 'T. R. Malthus'. The case is exactly analagous to J. M. Keynes: always 'Maynard', never 'John'.

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