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 18: Ideology and analysis in macroeconomics

Axel Leijonhufvud

Subjects: economics and finance, history of economic thought

Extract

Economists converse and quarrel with one another as if it were obvious where the line between normative and positive propositions runs. In macroeconomic controversy, specifically, each side will dismiss some set of statements by the opposing side as ‘ideological’ in the sense of ‘normative’. In my view, this dismissal often means that one fails to address and appraise important positive beliefs. The example of such a belief that we will consider is ‘the market system will coordinate individual economic activities’. But there are others, such as beliefs about ‘basic’ human nature. The formalization of economics and increasing specialization among economists aggravates the problem. These ‘cosmological’ beliefs are on the whole not appropriately addressed when controversy proceeds in obedience to the overt standards of mathematical and statistical precision. Thus, it seems to me, there are crucially important areas of substantive belief that are not at present subject to any orderly (well, more or less orderly) ‘conjecture and refutation’ process. At the same time economists have become much more narrowly educated and specialized. This ‘division of knowledge’ tendency we allow to run its course in the belief that mathematics can by itself maintain the intellectual coherence of the social sciences. But I do not believe we have reached the state yet where it can. THEORY AND ADVOCACY Macroeconomic Battlelines The major controversies in macroeconomics since the publication of Keynes’s General Theory have left behind a legacy of shorthand labels for the respective contending groups. Disturbingly, these paired labels are often perceived...

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