From Muddling Through to the Economics of Control: Views of Applied Policy from J. N. Keynes to Abba Lerner

Abstract

It considers three views. One is the view of J. N. Keynes andLionel Robbins, who argue that pure economic theory has little or noth-ing to say about policy, but that a separate branch of economics existsthat should consider such policy issues.A second view is that ofAlfredMarshallandA.C.Pigou,whoarguethata“realistic”theorycanbeusedto guide judgments on policy. The third view, which is most closely re-lated to an “economics of control” view set out by Abba Lerner, con-nects pure theory, policy, and the role of government in the economy ina more direct way, drawing implications about policy and the role of thestate from pure theory.Thisessaydiscussestheevolutionofthesethreeviewsandarguesthatthe first two are actually much more compatible than they at first seem.They both can be seen as a “muddling through” approach to policy, inwhich pure economic theory does not give much guidance for policy.The third view, in which pure theory gives direct guidance for policy, isincompatiblewiththeothertwo.Theessayconcludesbyarguingthatthecurrent textbook presentation of policy follows the third view and that,