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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…
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.
The similarities among the writings of Ralph Hawtrey, Lauchlin Currie and Milton Friedman are re‐affirmed, as is the influence of the former on what Friedman has called “the Chicago tradition” of the 1930s. The underconsumptionist analysis of Paul Douglas is not integral to that tradition.
The scientific correspondence between Harrod and Robertson was initiated by Harrod’s criticism of Robertson’s Banking Policy and the Price Level (1926).7 Harrod first wrote on 18 May 1926 (letter 2) raising at once the following “salient point”: Much of your argument depends on the view that justifiable expansions and contractions as defined by you are desirable. Why are they desirable? You give reasons on p. 22 why you think some instability in output desirable. But the reasons mentioned there (and I can’t find any others) don’t seem particularly directed to show that the special form of instability constituted by the so-called “justifiable” expansions and contractions is desirable. They seem to me to show that perhaps some instability, that, presumably, of less degree than we have been accustomed to in the past, is good, but by no means precisely how much is good. Thus, suppose the “hypothetical group member” or “the actual workman” of p. 19 were able to govern output according to their own self interest, there would still, according to the arguments of ch. 2, be some instability. Would not that be enough? Or if you want more, why stop at the “justifiable”? Why not have some of that due to “secondary” causes? It seems to me that you have been led away by purely aesthetic interests to identify that more moderate amount of instability which we really need (as shown on p. 22.) with that which we would get: (i) if secondary causes were removed; and (ii) if control of output stayed where it is now – in the hands of the entrepreneur. I don’t see how you can say to the banks more than “damp down fluctuation a bit, but leave some fluctuation, as that is healthful for the body economic”.He added two notes to his letter, in the first of which he commented upon the four proposed courses of policy outlined by Robertson on pp. 25–26 of his book. In the second note Harrod suggested that Robertson’s calculations in Appendix I to Ch. 5 of Banking Policy assumed the following behaviour of the public: (i) People do not allow for the effect of their withholding on the price level (this is reasonable). (ii) They are ignorant as the future course of inflation (or do nothing to meet it). (iii) On this basis they decide what withholding is necessary to restore H, decide that it would be too much effort to restore it at once, and…spread the restoration over K – 1 days. It so happens that by choosing K – 1 their 2 errors (or failures to take everything into account) cancel each other out, and they do effect the restoration in that time. If K or K – 2 had been chosen, this would not have been so.Harrod further argued that Robertson’s “so-called reasonable assumption of a restoration in K – 1 days is purely arbitrary,” and that “all this reasoning is rendered of doubtful value by the fact that we must suppose an alteration in view as to ‘the appropriate proportion between Real Hoarding and Real Income’ during the process of inflation. Not only will people not replenish H at once, but they may well voluntarily reduce it.”
The purpose of this paper is to review the literature on the determinants of the exchange‐rate by examining the flow theory approach, purchasing power parity theory, the…
The purpose of this paper is to review the literature on the determinants of the exchange‐rate by examining the flow theory approach, purchasing power parity theory, the monetary approach and the assets market approach.
Reproduces the main texts of hitherto unpublished reminiscences of the style and influence, as a teacher, of Allyn Abbott Young (1876‐1929) by 17 of his distinguished…
Reproduces the main texts of hitherto unpublished reminiscences of the style and influence, as a teacher, of Allyn Abbott Young (1876‐1929) by 17 of his distinguished students. They include Bertil Ohlin, Nicholas Kaldor, James Angell, Lauchlin Currie, Colin Clark, Howard Ellis, Frank Fetter, Earl Hamilton, and Melvin Knight (brother of Frank Knight who, with Edward Chamberlin, was perhaps Young’s most famous PhD student). There has recently been a revival of interest in Young’s influence on US monetary thought and in his theory of economic growth based on endogenous increasing returns. These recollections of his students (addressed to Young’s biographer, Charles Blitch) shed light on why Young has, at least until recently, been renowned more for his massive erudition than for his published writings.
The chapter examines the core framework of A. C. Pigou’s Theory of Unemployment (TU) with the aim of providing a rational reconstruction of his analysis of the…
The chapter examines the core framework of A. C. Pigou’s Theory of Unemployment (TU) with the aim of providing a rational reconstruction of his analysis of the determinants of unemployment in the short period. This is accomplished without any comparison with Keynes’s criticism of TU, as often found in the previous literature.
I reconstruct Pigou’s two-sector model, which only accounted for output in the wage good sector but not in the non-wage good sector, as a complete two-sector model to reveal his implicit assumptions about the passive behaviour of non-wage earners in the non-wage good sector. I also find classical elements, most notably the wage fund doctrine and the hypothesis on profits, in Pigou’s approach, which partly explains why the model is incomplete when viewed in terms of its neoclassical elements. In the “A Rational Reconstruction of the Two-Sector Model” section, I sketch a mathematical model to make Pigou’s analysis consistent.
The chapter shows how unemployment is determined and how economic policy to deal with it is conceived in the work of a major exponent of the pre-Keynesian approach.
In this chapter, we apply the new measure of speculative activities (hereafter, named the speculative ratio) in Chan, Nguyen, and Chan (2013) to study the relationship…
In this chapter, we apply the new measure of speculative activities (hereafter, named the speculative ratio) in Chan, Nguyen, and Chan (2013) to study the relationship between those activities and volatility in the oil futures market. We document that the speculative ratio (trading volume divided by open interest) can isolate speculative elements from total trading activities. Using the oil futures data and dividing the data into two subperiods surrounding Hurricane Katrina, we find an increased speculative trades in the post-Hurricane Katrina period. Our results show that speculative activities create a more volatile oil futures market and they lower the information flow between volatility and speculative activities in the post-Hurricane Katrina period.