Macroeconomic Instability and Coordination

Macroeconomic Instability and Coordination

Selected Essays of Axel Leijonhufvud

Economists of the Twentieth Century series

Axel Leijonhufvud

Axel Leijonhufvud has made a unique contribution to the development of macroeconomic theory. This volume draws together his insightful essays dealing with the extremes of economic instability: great depressions, high inflation and the transition from socialism to a market economy. In several of the papers, Leijonhufvud brings a neo-institutionalist perspective to the problems of coordination in economic systems.

Chapter 5: Hicks on time and money

Axel Leijonhufvud

Subjects: economics and finance, history of economic thought

Extract

Modern macroeconomic theory has been shaped to an extraordinary degree by Keynes and by Hicks. My assignment was to discuss them both, but I have found it too large for a paper. I will confine my discussion of Hicks’s role to two related themes: time and money. Even within these boundaries, the following attempt at an interpretation cannot be definitive.1 Among the several reasons for this, one is germane: I know that I shall learn more from Sir John Hicks in the future. But I cannot know exactly what I shall learn next time I sit down to read or reread him. Hence today’s assessment cannot be my ‘optimal’ or final one. Rather than commit myself fully, I should retain a measure of ‘flexibility’.2 In certain types of situations, it is rational to commit oneself fully or contingently. In others, where the future contingencies cannot be enumerated or their nature anticipated, one should retain flexibility. One difference between neoclassical and Keynesian theory is that the former tends to exclude, whereas the latter must include, situations of the second sort.3 The younger Hicks is remembered for his contributions to neoclassical economics; over the years the elder Hicks has become more insistently Keynesian in this particular sense. TIME AND EQUILIBRIUM ‘Every economist is familiar with the accomplishments of Hicks the Younger, whether he has read him or not. That brilliant young man was supremely successful – by reformulating utility theory, by simplifying monetary theory, by interpreting Keynes and the Classics, and...

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