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Simon Wren-Lewis

New Classical Counter Revolution (hereafter NCCR). It may be more helpful to think about the NCCR as involving two strands. The one most commonly talked about involves Keynesian monetary and fiscal policy. That is of course very important, and plays a role in the policy reaction to the recent Great Recession. However I want to suggest that in some ways the second strand, which was methodological, is more important. The NCCR helped completely change the way academic macroeconomics is done. Before the NCCR, macroeconomics was an intensely empirical discipline

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Statement of the Co-Editors

Economics and the economic crisis: the case for change

Thomas Palley, Louis-Philippe Rochon and Matias Vernengo

economics and they forged a counter-revolution, centered upon the University of Chicago and the work of Milton Friedman. In the 1960s and early 1970s the counter-revolution took the form of monetarism, and thereafter it evolved into new classical macroeconomics. The intellectual link between monetarism and new classical macroeconomics was animosity towards Keynesianism and a dogmatic predisposition to laissez-faire conclusions. The counter-revolutionaries were successful in their project and recaptured control of macroeconomics in the late 1970s. Their success was

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William A. Jackson

, and so forth. Such a defence (which resembles neo-Austrian arguments) never prospered in the early nineteenth century, when capitalism was justified through classical economics on universal and ahistorical grounds. The new marketbased economies were emblems of scientific progress, even though the Enlightenment was equally at home with economic and social planning as with the invisible hand. Faced with a close bond between capitalism and the Enlightenment, the Romantic Movement set itself decisively against both: it upheld the ideas of the Counter-Enlightenment but

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Alessandro Vercelli

New Classical economics is a school of thought that emerged in the early 1970s and aimed to complete the anti-Keynesian counter-revolution started by the monetarists by producing a radical U-turn in the methodology of macroeconomics. The name attributed to this school reflects the intention of Robert E. Lucas, its main founder and leader, to complete the euthanasia of macroeconomics in order to recover the fundamental unity of economic theory. Keynes had introduced the neologism ‘macroeconomics’ to emphasize its autonomy from the classical axioms of individual

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Edited by Thomas Cate

The dual decision hypothesis, due to Robert W. Clower, received widespread attention upon its publication in the paper ‘The Keynesian Counter-revolution: A Theoretical Appraisal’ in 1965, though it was first presented by the author at an International Economic Association conference in 1962 at the Abbey of Royaumont in France, and first published in its German translation ‘Die Keynesianische Gegenrevolution: Eine Theoretische Kritik’ in 1963. Clower used the analytical construct of the dual decision hypothesis for reconciling the

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Sherryl Davis Kasper

monetarist counter-example in the framework of Keynesian economics, Keynesian economists began to formulate their research in new classical structures.1 Further, the new classical models demonstrated more rigorously than those developed by Friedman and Buchanan that the economy is managed more efficiently with a laissez-faire framework of policy rules. For these models portray discretionary policy as ineffective in offsetting business cycles in both the long run and the short run and as a cause of instability in the economy. In effect, Lucas had inspired a counter-revolution

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Paul Davidson

resulting logical inconsistencies between these Old Keynesians’s classical microfoundations and their Neoclassical Synthesis Keynesian macropolicies provided an opportunity for logically consistent classical theorists to launch a successful theoretical counter revolution against all ‘Keynesians’. The result was the 1960s revivification of the classical theory (and the promotion of classical policies) that began to dominate academic discourse. By the mid-1970s, many economic textbooks declared Keynes’s theoretical revolution dead. The winners of the academic debate were the

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Thomas Palley, Louis-Philippe Rochon and Matías Vernengo

their policy implications, took hold after the Great Depression via the events at the Macmillan Committee. Simon Wren-Lewis suggests that to understand the status of The General Theory today, and why so many policy-makers felt they had to go back to it to understand the Great Recession, we need to understand the New Classical Counter Revolution (NCCR) and why it was so successful. This revolution can be seen as having two strands. The first, which attempted to replace Keynesian policy, failed. The second, which was to change the way academic macroeconomics was done

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Roger E. Backhouse

challengers to the new orthodoxy, were on the defensive. Ongoing debates between the new Keynesians and their new classical or real-business-cycle counterparts laid the foundations for what Goodfriend and King (1997) called the ‘new neoclassical synthesis’, summed up in Michael Woodford’s Interest and Prices (2003). It was this second revolution, sometimes called a ‘counter-revolution’, on account of its restoration of a classical orthodoxy, that was called into question by the financial crisis of 2008.2 The aim of this chapter is to compare these two revolutions

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J. Thomas Wren

, too, there was the continuing problem of leaders whose traits and behaviors seemed inconsistent with the classical ideal. Here, too, the seeds of the problem antedated the Revolution, but the Revolution itself greatly exacerbated its impact. As Wood depicts Wren 02 chap04 158 7/6/07 10:59:07 The challenge of democracy 159 the scene, ‘in many of the greatly enlarged and annually elected state legislatures, a new breed of popular leader was emerging who was far less educated, less liberal, and less cosmopolitan than the revolutionary gentry had expected. These