American Keynesians Research Articles

Robert Solow, eclectic American Keynesianism, and the Review of Keynesian Economics

Robert Solow, eclectic American Keynesianism, and the Review of Keynesian Economics

James Tobin on macroeconomic instability: an old Keynesian changes ground

From 1975 onwards, James Tobin changed his interpretation of the Keynesian case that active stabilisation policy is sometimes needed to restore full employment, offering a new interpretation that drew on Keynes’s General Theory and on Irving Fisher’s 1933 debt-deflation theory of depressions to argue that wage and price flexibility could be destabilizing. Like Hyman Minsky and Peter Howitt, Tobin stressed the previously underappreciated Chapter 19 of The General Theory, where Keynes argued that faster adjustment of prices and money wages could be destabilising. The basis of Keynesian macroeconomics was coordination failure and instability, not irrational money illusion or an arbitrary assumption of a fixed money wage.

James Tobin on Overlapping Generations Models and the Microeconomic Foundations of Macroeconomics Reconsidered

The American Keynesian economist and Nobel laureate James Tobin entitled his contribution to the inaugural issue of Journal of Money, Credit and Banking “A General Equilibrium Approach to Monetary Theory” (1969) yet he was sharply critical of the version of general equilibrium analysis used in the now-prevalent dynamic stochastic general equilibrium (DSGE) approach to macroeconomic modeling. He also rejected claims that overlapping generation (OLG) models provided a choice-theoretic foundation for the holding of fiat money, denying that the assumption that people held fiat money because no other asset existed was less arbitrary than allowing costs of transactions between assets to be non-zero. Yet, while not accepting OLG as the explanation of why people hold fiat money, Tobin, in a series of articles from 1967 to 1983 (some joint with Walter Dolde), placed the life-cycle model of consumption and saving (whose origins he attributed to an earlier Yale economist, Irving Fisher) into an OLG setting. This article examines Tobin’s critiques of DSGE and OLG modelling in macroeconomics, what he meant by “a general equilibrium approach to monetary theory,” and his contribution placing the life-cycle model in an OLG setting.

Institutionalism in Action: Balancing the Substantive Imbalances of “the Economy” through the Veil of Money

Scholars working on the history of economics and economic governance assume national income accounting emerged naturally out of Keynesian concerns with economic growth and wartime needs. This paper provides an alternative and more complex genealogy, arguing instead that income accounting was born out of a governmental project, implemented by institutionalist economists at the National Bureau of Economic Research (NBER) during the interwar period, to manage “the business cycle.” Bridging the literatures on the history of economic policymaking of the interwar period and the postwar triumph of “American Keynesianism,” it shows that institutionalists developed income accounting as a knowledge infrastructure to monitor inter-sectoral imbalances that generated cyclical fluctuations. Called the National Income and Product Accounts (NIPA) System, this infrastructure constructed “the economy” as a composite statistical object, composed of many disparate, nonfungible substantive elements that could not have been otherwise patched into a coherent whole. Wrapping these elements into the veil of money, the NIPA System became the interface through which policymakers intervened in intersectoral imbalances at the level of monetary flows with fiscal tools.

Franco Modigliani as "American" Keynesian: How the University in Exile Economists Influenced Economics

Franco Modigliani as "American" Keynesian:How the University in Exile Economists Influenced Economics Harald Hagemann (bio) I had the great luck of being awarded a free tuition fellowship by the Graduate Faculty of Political and Social Science of the New School for Social Research … as I was discovering my passion for economics, thanks also to excellent teachers, including Adolph Lowe and above all Jacob Marschak, to whom I owe a debt of gratitude beyond words. (Modigliani 1985, 1–2) INTRODUCTION "Franco Modigliani was a Keynesian, his own kind of Keynesian," wrote Robert M. Solow (2005, 16), a longtime friend and Massachusetts Institute of Technology colleague of Modigliani. Solow noted that "it is a little amusing" that the founders of American Keynesianism "include an Englishman [John Hicks], a refugee from Poland [Oskar Lange] and a refugee from Italy [Franco Modigliani], along with a handful of Americans, like Samuelson, Tobin and Solow." Solow continued, "Franco and I shared the opinion that Keynes was the most important economist of the twentieth century, and The General Theory [of Employment, Interest, and Money under the Assumptions of Flexible Prices [End Page 955] and of Fixed Prices] the single most important work" (Solow 2005, 11). Paul A. Samuelson, also an MIT colleague of Modigliani, notes that the "triumphant rise of American economics after 1940 was enormously accelerated by importation of scholars from Hitlerian Europe" (1988, 319; see also Hagemann 2011). This essay is an effort to gauge the influence of New School economists—all refugees themselves—on the thinking of another refugee economist, Franco Modigliani, winner of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1985 for his work in macroeconomic theory. Modigliani arrived in the United States with his wife Serena on August 28, 1939, four days before the outbreak of World War II. By that time he had already received his degree of Juris Doctor from the University of Rome and had won a nationwide competition for an essay on price controls; the prize had been handed to him by Mussolini in person in 1936 (see Modigliani 2001, 9ff). He had acquired his knowledge on the subject by translating articles from German publications, in which it had become a main topic after the Nazis introduced wage and price controls. Modigliani, whose aversion to fascism began with the war in Ethiopia, spent most of the academic year 1938–39 at the Sorbonne in Paris after the Mussolini government, in September 1938, launched racial laws according to which Jewish professors, such as Marco Fanno in Padova, were dismissed from their universities. The general question of the influence of refugees on each other's thinking has already been raised. Samuelson pointed to the role of the New School in forming Modigliani's thought: "Indeed at the New School in New York by great luck he tied in with Jacob Marschak and Hans Neisser, themselves gifts from Hitler to American science" (Samuelson 2005, 5). Still, we often think of the New School tendencies as unorthodox and politically on the left. And they generally were. But in this instance, Modigliani came under the influence of the New School refugee economist with the most impressive career in American economics. The result of this influence is a largely neoclassical synthesis of Keynes. Although Modigliani explicitly introduced [End Page 956] the labor market in his analysis, in 1944 his focus was not on the wage-employment relationship but on the monetary aspects of unemployment. He clearly favored an expansion in the quantity of money as the alternative route to increasing employment, eliminating a drop in the price level as the "only objectionable consequence of wage cuts" (Samuelson 2005, 75). Concerning economic policy, Modigliani was widely in agreement with Keynes and with the contributions made by his teachers at the New School to the German debate on the wage-employment relationship during the Great Depression. Like Keynes, Modigliani also considered wage rigidity to be mainly the result of historical and institutional factors. But Modigliani insisted that the Keynesian conclusions on the persistence of long-term unemployment were fundamentally the consequence of downward rigidity of nominal wages, decisive for the collapse of the classical dichotomy. He stuck to...

Statistical Modeling of Monetary Policy and Its Effects

The science of economics has some constraints and tensions that set it apart from other sciences. One reflection of these constraints and tensions is that, more than in most other scientific disciplines, it is easy to find economists of high reputation who disagree strongly with one another on issues of wide public interest. This may sug gest that economics, unlike most other scientific disciplines, does not really make progress. Its theories and results seem to come and go, always in hot dispute, rather than improving over time so as to build an increasing body of knowledge. There is some truth to this view; there are examples where disputes of earlier decades have been not so much resolved as replaced by new disputes. But though econom ics progresses unevenly, and not even monotonically, there are some examples of real scientific progress in economics. This essay describes one—the evolution since around 1950 of our understanding of how monetary policy is determined and what its effects are. The story described here is not a simple success story. It describes an ascent to higher ground, but the ground is still shaky. Part of the purpose of the essay is to remind readers of how views strongly held in earlier decades have since been shown to be mistaken. This should encourage continuing skepticism of consensus views and motivate critics to sharpen their efforts at looking at new data, or at old data in new ways, and generating improved theories in the light of what they see. We will be tracking two interrelated strands of intellectual effort: the methodol ogy of modeling and inference for economic time series, and the theory of policy influences on business cycle fluctuations. The starting point in the 1950s of the the ory of macroeconomic policy was Keynes's analysis of the Great Depression of the 1930s, which included an attack on the Quantity Theory of money. In the 1930s, interest rates on safe assets had been at approximately zero over long spans of time, and Keynes explained why, under these circumstances, expansion of the money sup ply was likely to have little effect. The leading American Keynesian, Alvin Hansen, included in his (1952) book A Guide to Keynes a chapter on money, in which he explained Keynes's argument for the likely ineffectiveness of monetary expansion in a period of depressed output. Hansen concluded the chapter with, Thus it is that modern countries place primary emphasis on fiscal policy, in whose service mone tary policy is relegated to the subsidiary role of a useful but necessary handmaiden. The methodology of modeling in the 1950s built on Jan Tinbergen's (1939) seminal book, which presented probably the first multiple-equation, statistically estimated economic time series model. His efforts drew heavy criticism. Keynes

Abram Bergson, EconomistApril 21, 1914 – April 23, 2003

Over the last two‐thirds of the twentieth century, Abram Bergson was a leading American and world mathematical economist. He was a creative theorist, both literary and statistical. Also Bergson was a careful empiricist who, from a bully pulpit at Harvard, earned a reputation as the dean of Soviet studies and teacher of that subject’s major scholars over two generations. At a young age in 1933 Abram came to the Harvard Graduate School in economics, after undergraduate training at Johns Hopkins. Adolph Hitler was responsible for new foreign blood arriving in Cambridge to trigger an overdue pre‐war Harvard renaissance in economics. When Bergson died at age 89, he was the last survivor of Harvard’s age of Frank Taussig, as well as being a young star in the new age of Joseph Schumpeter, youthful Wassily Leontief, eclectic Gottfried Haberler and, after 1937, Alvin Hansen, the ‘American Keynesian’. As Leontief’s second protegé, I am proud to have been preceded by Abram Bergson, his first protegé. I would be honoured to be known as Bergson’s first protegé, for much of my own work in welfare economics owes virtually everything to his classic 1938 Quarterly Journal of Economics article that for the first time clarified this subject as treated by Lionel Robbins, Abba Lerner, John Hicks, Nicholas Kaldor, Tibor Scitovsky ‐ and, of course, earlier by Jeremy Bentham, J.S. Mill, F.Y. Edgeworth, and A.C. Pigou.

Tugan-Baranovsky as a Pioneer of Trade Cycle Analysis

Mikhail Ivanovich Tugan-Baranovsky (1865–1919) has not unjustly been calle the greatest Russian economist of all time (Jasny 1972, p. 159). This neglecte the fact that he was born near Kharkov and towards the end of his life came to see the Ukraine as his homeland, but the evaluation itself is not so far from the truth. However, opinion about the precise importance of Tugan-Baranovsky work to the development of trade cycle analysis has varied widely. J. M. Keynes and A. H. Hansen were both highly respectful of Tugan's contribution. For example, in the Treatise on Money, Keynes wrote in regards to business cycle theory that he was “in strong sympathy with the school of writers … of which Tugan-Baranovski was the first and most original” (Keynes 1930, vol. 2, p. 100 In his 1951 work, Business Cycles and National Income, Hansen was enthusiastic describing Tugan as “cutting his way though the jungle to a new outlook” (Hansen 1951, p. 281). This suggests that some aspects of both British an American Keynesianism might have originated in Tugan's work, or at least bee influenced by it. W. W. Rostow was also impressed by Tugan's approach, statin that it “took business cycle analysis some distance beyond Juglar and Marx” (Rostow 1990, p. 261).

The Money Interest and the Public Interest: American Monetary Thought, 1920-1970.

Journal Article The Money Interest and the Public Interest: American Monetary Thought, 1920–1970. By Perry G. Mehrling. (Cambridge: Harvard University Press, 1997. xvi, 283 pp. $45.00, ISBN 0-674-58430-9.) Get access Elmus Wicker Elmus Wicker Indiana University, Bloomington, Indiana Search for other works by this author on: Oxford Academic Google Scholar Journal of American History, Volume 86, Issue 1, June 1999, Pages 257–258, https://doi.org/10.2307/2567481 Published: 01 June 1999

Controversies in Post Keynesian Economics

The need for theoretical revolution policy prescriptions for the post war world neoclassical theory vs. Keynes's economic reality mathematics and money the basis of the neoclassical resurrection post a reaction to American Keynesianism the analysis of uncertainty, money and unemployment monetarists, neoclassical Keynesians, post Keynesians three views of inflation the role of contracts in theory and the real world the neoclassical response to post Keynesian criticisms which economic theory for the 21st century?

From Multi-Industry Planning to Keynesian Planning: Gardiner Means, the American Keynesians, and National Economic Planning at the National Resources Committee

In recent years we have witnessed a revival of interest in the National Resources Committee (NRC) and its work on national planning. The research shows that the roots of national planning at the NRC are found in the Progressive Era, when individuals sought, through city, regional, and economic planning, to bring order to American society, in the government's management of the economy during World War I, and in Hoover's attempt at macromanagement of the economy. The research also shows that national economic planning, as distinct from other forms of planning, was an important component of the committee's work. In regard to this, researchers have acknowledged that Gardiner Means, as director of the Industrial Section of the Industrial Committee and author of The Structure of the American Economy, Part I: Basic Characteristics, was an important and outspoken advocate of economic planning within the NRC, but they have been less clear as to his specific contributions to economic planning. Moreover, the researchers have not extensively investigated the NRC position toward national economic planning, the economic models from which national economic plans would be developed, and the impact of the Keynesian revolution on the NRC approach to national economic planning. These omissions are not surprising inasmuch as neither Warken's (1979) nor Clawson's (1981) general coverage of the NRC provided much more than a brief and superficial description of the Industrial Section and a listing of its most important publications. Kalish (1963), on the other hand, discussed Means and the Industrial Section in more depth but in such a disjointed manner that it is impossible to grasp the movement toward economic planning that took place in the NRC and the important role Means played in the process. Finally, neither Chapman's (1981 and 1983) nor Jeffries's (1987) discussions of the impact of the Keynesian revolution on the activities of the NRC dealt specifically with its impact on Means's work on economic planning.

Arthur Okun's Contribution to the Macroeconomic Policy Debates in the 1970s

Abstacts This paper examines the policy views of a prominent American Keynesian, Arthur Okun. An account is given of what Okun actually said on stabilisation policy and the need for a wage-price policy by using his testimonies before Congressional Committees, It is concluded that Okun was an advocate of a particular approach to promoting anti-inflation and pro-employment policies and was able to communicate these ideas to those actually concerned with public policy formation.

Trade Liberalization and Economic Growth in Europe and the United States

Four decades ago, Hayek and Schumpeter – two giants among the social philosophers of this century – foresaw an irreversible shift towards centralization and bureaucracy. Five decades ago, the American Keynesians, notably Alvin Hansen, predicted secular stagnation. They envisaged a saturation of consumer wants, declining population growth, and a dearth of opportunities for autonomous investments that arise from inventions and innovations and from the existence of a geographic frontier. Both predictions turned out to be wrong. A cyclical decline was mistaken for a trend, similar to the Communist Manifesto which, a century before, had misjudged a period of relative stagnation as an indicator of the inevitable breakdown of the market system…

The End of Keynesianism

Abstract Are Keynesian policies doomed? The experience of both Chirac and Mauroy might make one think so. Yet too severe a judgment would overlook an important counter-example: the actual economic recovery in the United States. As happened under the Kennedy-Johnson administration 20 years ago, the United States is experiencing a recovery that follows the textbook precepts of Keynesianism: an increase in military spending and a decrease in taxes, all of which is accompanied by (as predicted by the theory) an increase in the interest rate and the deficit. Yet, the 20-year gap that separates these two prime examples of American Keynesianism reveals an essential difference. At the beginning of the 1960s, Keynesianism was the dominant theory to which the Democratic administration referred. Now, in the mid-1980s, Keynesian theory is hidden.

The Failure of American Keynesianism

The Failure of American Keynesianism

Our Mixed Economy

THE PHRASE, economy, is not yet a venerable cliche, but it is already a significant one. It has been widely used in this country only since Alvin Hansen and other American Keynesians began popularizing it a dozen years ago. Of all the watchwords now clogging public policy discussion, however, the term probably comes closest to encompassing what there is of a doctrine or conceptual core among moderate, slightly-left-of-center, postwar liberals. And, by the same token, its fuzziness and lack of charm evidence the terminological doldrums into which vital center has drifted. The ideological plight of middle-of-the-roaders has been well publicized. Roll the words mixed economy around your tongue for a moment, and you have the essence of it. Smacking as they do of vegetables and metaphors, they invite a neither-fish-nor-fowl indictment. And this, of course, they regularly incur from critics, like Professor Hayek, who make the most of middle-of-the-roaders' classic propensity for being put semantically on the defensive. Invariably moderates get trapped into arguing their case in the language of the extremes on either hand. As soon as they do, their credos become constipated with exceptions, qualifications, and apparent inconsistencies.