Modeling Economic Instability: A History of Early Macroeconomics

253 Pages·2022·7.298 MB·English

by  Michaël Assous, Vincent Carret

Springer Studies in the History of Economic Thought
Michaël Assous
Vincent Carret
Modeling
Economic
Instability
A History of Early Macroeconomics
Springer Studies in the History of Economic
Thought
SeriesEditors
HaraldHagemann,UniversityofHohenheim,Stuttgart,Germany
MurielDalPontLegrand,UniversitéCôtéd’Azur,SophiaAntipolisCedex,France
RobertW.Dimand,BrockUniversity,StCatharines,ON,Canada
Hans-MichaelTrautwein,CarlvonOssietzkyUniversityOldenburg,Oldenburg,
Germany
AdvisoryEditors
ArieArnon,Ben-GurionUniversityoftheNegev,BeerSheva,Israel
TonyAspromourgos,UniversityofSydney,Sydney,Australia
MichaëlAssous,LumièreUniversityLyon2,Lyon,France
VladimirAvtonomov ,HigherSchoolofEconomics,Moscow,Russia
KatiaCaldari,UniversityofPadova,Padova,Italy
JoséLuísCardoso,UniversityofLisbon,Lisboa,Portugal
AlexandreMendesCunha,UniversidadeFederaldeMinasGerais,BeloHorizonte,
Brazil
ArianeDupont-Kieffer,UniversitéParis1Panthéon-Sorbonne,Paris,France
EvelynForget,UniversityofManitoba,Winnipeg,Canada
YukihiroIkeda,KeioUniversity,Tokyo,Japan
MarianneJohnson,UniversityofWisconsinOshkosh,Oshkosh,WI,USA
HeinzKurz,UniversityofGraz,Graz,Austria
Jean-SébastienLenfant,UniversitédeLille,Lille,France
QunyiLiu,PekingUniversity,Beijing,China
MariaCristinaMarcuzzo ,SapienzaUniversitàdiRoma,Rome,Italy
SylvieRivot,UniversitédeHaute-Alsace,Mulhouse,France
MargaretSchabas,UniversityofBritishColumbia,Vancouver,Canada
BertramSchefold,JohannWolfgangGoethe-Universität,Frankfurt,Germany
RichardvandenBerg,KingstonUniversity,Surrey,UK
IsabellaMariaWeber,UniversityofMassachusettsAmherst,Amherst,MA,USA
CarloZappia,UniversitàdiSiena,Siena,Italy
AnnieL.Cot ,MaisondesScienceséconomiques,Pantheon-SorbonneUniversity,
Paris,France
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·
Michaël Assous Vincent Carret
Modeling Economic
Instability
A History of Early Macroeconomics
MichaëlAssous VincentCarret
UniversitéLumièreLyon2 UniversitéLumièreLyon2
Lyon,France Lyon,France
ISSN2662-6098 ISSN2662-6101 (electronic)
SpringerStudiesintheHistoryofEconomicThought
ISBN978-3-030-90309-1 ISBN978-3-030-90310-7 (eBook)
https://doi.org/10.1007/978-3-030-90310-7
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ForMarjolaine,PierreandVictor.
—MichaëlAssous
Preface
The1930scoincidedwitharadicalchangeinthewaymacroeconomicissueswere
addressed.Fromthenon,macroeconomicsbecameaquantitativesubdisciplinebased
onmathematicalmodels.Thisbookdescribesandanalyzesthatevolutionbypaying
attentiontoaseriesofmodelsdevelopedbyeconomistswhobecamethemostrecog-
nizednamesoftheprofession,aswellasbyothereconomistsmuchlessknowntoday.
Inexplaininghowtheywerecreatedandhowtheyembodiedspecificvisionsofthe
world,wehopetohelpaninformedpublictoreflectuponthepastandtheidealsof
agenerationofeconomiststhatcameofageduringtheinterwarandearlypostwar
period.Inaddition,ourambitionistoprovidenewmaterialstoeconomists,students,
teachersandsocialscientistseagertogainanewperspectiveonthekindofknowledge
whichbelongs,forasignificantpart,tothemodernlandscapeofeconomics.
One of the central themes of this book, which appears throughout the models
studied, is the problem of economic instability, whose treatment varied according
tothemodelsandtheeventssurroundingthem.Partofthechallengeofwritingthis
historywastofindawaytoaccountforthetechnicaldimensionofthesecontributions
withoutdilutingtheiroriginalityinsimplifications.Thebookhasthusbeenwritten
inrelationtoawebsiteprovidingcomputersimulationswhichofferawaytoeasily
visualize the solutions of different models and to see how policies may change
economictrajectories.Inordertostickwiththemessageandthevisionoftheoriginal
contributors, these applications have been developed in strict accordance with the
properties of the models studied. Furthermore, this website has been designed to
provideaneasieraccesstothecontentofthearchivalandpublishedmaterialsforming
thebasisofthisstudy,aswellasasortofmathematicalappendixtothebook.Itis
ourconvictionthatsuchatoolmaycontributetotheconsolidationofourknowledge
ofthepastandhelpcompletethebigpictureofthedevelopmentofeconomicideas.1
Wearealsoconfidentthatthisapproachcanmeettheexpectationsofeconomists
who,forteachingpurposes,oftenrefertopastdiscussionsbutwho,intheabsence
ofaprecisehistoricalaccount,oftenresorttoschematicviewswhichpoorlyfulfill
theobjectivespursued.Onejusthastolookattheintroductionofclassicpapersand
1Thewebsiteisaccessibleat:https://www.economic-instability.com/.
vii
viii Preface
textbookstomeasurethegapbetweentheircontentandwhatisusuallysaidabout
them.Inprovidinganewwaytolookatthepast,wethushopetoavoidtwoobstacles:
fallingbackonscholarlyworksunderstoodbyahandfulofexpertsononehand,or
ontheotherhand,fallingbackonthe“potted”historiesfullofapproximationsand
simplifications.
The themes of this book have been at the center of the research of one of the
authorsforthepasttenyears,butthefinalformofthisprojecttookshapethroughthe
discussionsbetweenbothauthorsduringthepasttwoyears,whichledustoextend
thesceneandtopaymoreattentiontoeconomistslikeRagnarFrisch,JanTinbergen
orPaulSamuelson.Fortheirsupportduringthisproject,wewouldliketothankthe
Diderot library of the University of Lyon who gave us access to many references
initscollectionandbeyond,SigneHoltskogNyhuusfromtheNasjonalbiblioteket
ofNorwaywhoprovidedaccesstosomeofRagnarFrisch’sarchives,LizaSilvius
fromErasmusUniversityRotterdamforaccesstosomeofTinbergen’slettersandthe
archivistsattheRubensteinLibraryofDukeUniversityforaccesstotheSamuelson,
LawrenceKleinandDonPatinkinarchives.Fortheirpermissionstoreusepreviously
published figures, we would like to thank the Cowles Commission, the German
InstituteforEconomicResearch,theTinbergenestateandDukeUniversityPress,as
wellasPaulDudenheferforhisadviceinthismatter.Fortheircomments,suggestions
andremarksduringthepreparationoftheearlydrafts,chaptersandmanuscripts,we
wouldliketothanktheparticipantsintheCenterfortheHistoryofPoliticalEconomy
workshopatDukeUniversityinMarch2021,theparticipantsinTriangleseminars
where some drafts were presented, the participants in the workshop on economic
dynamics in Colmar in 2019 and the same year at the European Society for the
HistoryofEconomicThoughtconferenceandtheparticipantsinthe2020Historyof
EconomicsSocietysessionattheAlliedSocialSciencesAssociationconference,who
discussed the earlier stages of this project. We thank the editors of the collection,
Muriel Dal Pont Legrand, Robert Dimand, Harald Hagemann and Hans-Michael
Trautweinfortheiroriginalsupportandtheiradviceforthedirectionofthebookat
differentstages.FinallyweextendourthankstoAlainBéraud,MauroBoianovsky,
MarcelBoumans,ErwinDekker,ArianeDupont-Kieffer,FranciscoLouçã,Thomas
Rivet,GoulvenRubinandJanToporowskifordirectlydiscussingwithusthethemes
ofthisbookandcommentingonchapterdrafts.
Lyon,France MichaëlAssous
VincentCarret
Contents
1 Introduction .................................................. 1
References .................................................... 6
2 Looking for Dynamic Economics: Tinbergen’s Early
Breakthrough ................................................. 9
2.1 Introduction .............................................. 9
2.2 EconomicBarometersand“Cumulation” ..................... 10
2.3 TimeDerivativesandtheTheoriesofMaximumProduction ..... 13
2.4 SupplyLagsandMarketMovements ......................... 18
2.5 TheShipbuildingModelandMixedEquations ................. 22
2.6 Summary ................................................ 26
Appendix:TheShipbuildingModelandtheLambertFunction ........ 26
References .................................................... 30
3 Relaxation Oscillations in the Early Development
ofEconometrics:ARoadNotTaken ............................ 33
3.1 Introduction .............................................. 33
3.2 From Natural Sciences to Economics: A Case
ofNonmechanicalAnalogy ................................. 36
3.3 AccountingforaChangingPeriodandaConstantAmplitude .... 40
3.4 Le Corbeiller and the Early Reception of Relaxation
OscillationsAmongEconometricians ........................ 45
3.5 Coming(Almost)FullCircle ................................ 49
3.6 Summary ................................................ 51
References .................................................... 52
4 Frisch’s Macro-Dynamics: Inner Stability and External
Impulses ..................................................... 55
4.1 Introduction .............................................. 55
4.2 EarlyDebatesontheAcceleratorandtheConsumption
Function ................................................. 57
4.3 ClosingtheModel:DeterminantsofCyclicalFluctuations ....... 62
ix
x Contents
4.4 TheImpulseProblem:IstheCycleCompletelyRandom? ....... 71
4.5 Summary ................................................ 77
Appendix1:SolvingtheModelwithaShiftedLaplaceTransform ..... 77
Appendix2:ANumericalIntegrationofFrisch’sSystem ............. 83
References .................................................... 85
5 Kalecki’sMacro-Dynamics:“AutomaticCycles,”Stagnation
andClassStruggle ............................................ 87
5.1 Introduction .............................................. 87
5.2 Kalecki’sIngredients:Profits,ClassStruggleandCartels ........ 90
5.2.1 ProfitsandClassStruggle ............................ 92
5.2.2 CartelsandMarketPower ............................ 95
5.3 PuttingtheIngredientsTogether:Kalecki’sMacro-Dynamic
Model(1933–1935) ........................................ 97
5.4 StabilityandCyclesinKalecki’sModel ...................... 102
5.5 TheProblemofGrowthandInstability ....................... 107
5.5.1 Tinbergen’s1937ReviewofHarrod’sTradeCycle ....... 107
5.5.2 Lundberg on Economic Expansion and Model
Sequences ......................................... 109
5.6 Summary ................................................ 112
Appendix1:StabilityRegionsofKalecki’sModel .................. 112
Appendix 2: A Comparison Between Tinbergen, Kalecki
andFrischUsingtheLambertFunction ............................ 115
References .................................................... 117
6 Tinbergen’sMacro-Dynamics:InstabilityandthePossibility
ofCollapse ................................................... 121
6.1 Introduction .............................................. 121
6.2 Beyond the Business Cycle: Unstable States, Multiple
EquilibriaandCoordinationFailures ......................... 123
6.3 SizeMatters:LargeShocksandCollapseinTinbergen’s
Macro-DynamicModels .................................... 129
6.4 Macro-DynamicsRisingtotheChallengeofInstability ......... 137
6.5 Summary ................................................ 143
References .................................................... 144
7 Business Cycles, Pump-Priming and the Role of Public
Expenditures ................................................. 147
7.1 Introduction .............................................. 147
7.2 Tinbergen’s Analysis of the Multiplier: A Case
forPump-Priming ......................................... 149
7.3 Pump-PrimingDebatesinAmericaandthe1937Recession ..... 155
7.4 The Role of Public Expenditures in the Accelerator–
MultiplierModel .......................................... 162