This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt that the Great Depression exerted an enormous influence on economic thought, but the exact nature of its impact should be examined more carefully. In this chapter, I examine the transformation from a perspective which emphasizes the interaction between economic ideas and economic events, and the interaction between theory and policy rather than the development of economic theory. More specifically, I examine the evolution of what became known as macroeconomics after the Depression in terms of an ongoing debate among the “stabilizers” and their critics. I further suggest using four perspectives, or schools of thought, as measures to locate the evolution and transformation; the gold standard mentality, liquidationism, the Treasury view, and the real-bills doctrine. By highlighting these four economic ideas, I argue that what happened during the Great Depression was the retreat of the gold standard mentality, the complete demise of liquidationism and the Treasury view, and the strange survival of the real-bills doctrine. Each of those transformations happened not in response to internal debates in the discipline, but in response to government policies and real-world events.
Financial assistance from the Japanese Society for the Promotion of Science (No.15530127, No.25380257), the Foundation for the Encouragement of Study of the Japanese Economy, and Waseda University (Research Grant for Special Projects, No. 2003B-002) is gratefully appreciated. This chapter was written during my visits at the University of Cambridge and George Mason University; I would like to thank my colleagues there for their hospitality and intellectual stimulation. Also I would like to thank two anonymous referees for helpful comments. The remaining errors are mine.
Wakatabe, M. (2017), "The Great Depression and Macroeconomics Reconsidered: The Impact of Policy and Real-World Events on Economic Doctrines", Including a Symposium on New Directions in Sraffa Scholarship (Research in the History of Economic Thought and Methodology, Vol. 35B), Emerald Publishing Limited, Bingley, pp. 237-302. https://doi.org/10.1108/S0743-41542017000035B011
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