A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

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The development of modern macroeconomics

A rough guide

Brian Snowdon and Howard R. Vane

Any economics student who graduated from university in the late 1960s and early 1970s, as we both did, would have found macroeconomics a much easier and far less controversial subject to study then than it is today. Since the breakdown of the Keynesian consensus in the early 1970s, macroeconomics has been in a ‘state of disarray’ (Brunner 1989) having witnessed the appearance of a number of conflicting and competing approaches. As a result modern macroeconomics is a rapidly changing diverse subject with a built-in tendency to generate deep divisions. These divisions have led to the formation of schools of thought consisting of economists who share a broad vision of how macroeconomic phenomena are generated. In order to better understand current controversies it is necessary, in our view, to know how macroeconomic thought has developed since Keynes’s General Theory (1936) was published. In this opening chapter we briefly survey some of the important developments in the evolution of macroeconomics since the mid-1930s. Our purpose is not to critically assess in detail the central tenets underlying and policy implications of the main macroeconomic schools of thought, rather it is to provide a background discussion in order to help place the readings that follow in context (for a more detailed survey of competing schools of thought see Phelps 1990; Chrystal and Price 1994; Snowdon et al. 1994).

Although there are significant differences between the various schools of thought, the work of Keynes remains a central point of reference because, as Vercelli (1991) argues, all the schools define themselves in relation to the ideas originally put forward by Keynes in his General Theory, either as a development of some version of his thought or as a restoration of some version of pre-Keynesian classical thought. A unifying theme in the evolution of modern macroeconomics has been an ‘ever-evolving classical Keynesian debate’ (see Gerrard 1996). Although elsewhere (Snowdon et al., 1994) we have identified seven schools of thought which have been influential in the development of macroeconomic analysis since the mid-1930s, each of these schools can be viewed as adhering to one of two basic positions in terms of broad vision. Gregory Mankiw (1989)—reprinted in Part IV—describes these two positions by distinguishing between the

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