The history of modern macroeconomics
Written by: Michel De Vroey
Author Michel De Vroey gives us an insight into his latest book A History of Macroeconomics from Keynes to Lucas and Beyond (2016).
In his book, A History of Macroeconomics from Keynes to Lucas and Beyond, author Michel De Vroey draws a contrast between two eras in the history of modern macroeconomics: the Keynesian era, starting with Keynes’s General Theory, and the DSGE (standing for dynamic stochastic general equilibrium) era, inaugurated by Lucas. They are ruled by distinct methodological standards. The following figure summarizes the main contributions to these eras and their linkage; it also gives an overview of the book.
The Keynesian era comprises the episodes circled in blue, the DSGE era those circled in red; arrows indicate a line of continuity, double arrows one of opposition (either within the same wider approach, the black ones, or across wider approaches, the red ones).
This figure suggests that the unfolding of macroeconomics has been turbulent. De Vroey’s way for putting order into it is to study it through the lens of the Marshall-Walras divide. In this line, what has sometimes been called the ‘rational expectations revolution’ turns out to have been a transition from a Marshallian to a Walrasian way of conceiving macroeconomic theory. Definitely, this transition had the advantage of having made macroeconomics more rigorous. But it has also flop sides because Walrasian theory was not meant to be empirical and have policy conclusions as it outlet. Lucas’s wavering between Walras and Friedman is a testimony to these matching difficulties.
Two other striking features of the history of macroeconomics are also tackled in the book.
The first is that it is a field pervaded with controversies. Several of them are scrutinized by De Vroey: the dispute between Modigliani and Friedman on stabilization, a controversy between Tobin and Lucas on market clearing and involuntary unemployment, opposite standpoints between econometricians and calibrationists, and, finally, the confrontation between Solow’s and Chari’s on the pros and cons of DSGE macroeconomics.
The second striking trait follows from the fact that macroeconomics is concerned with policy matters. At bottom, these concern the respective roles of government and markets in the economy. Different issues ensue. For example, can ideological inclinations be harnessed? Do macroeconomists pursue a political agenda?
Michel De Vroey is the author of A History of Macroeconomics from Keynes to Lucas and Beyond (2016). He is a professor emeritus at the University of Louvain and visiting professor at the Université Saint Louis in Brussels. He has published several books, including Involuntary Unemployment: The Elusive Quest for a Theory (2007) and Keynes, Lucas: D’une macroéconomie à l’autre (2009). He has also published extensively in scholarly journals.