Lucas on the relationship between theory and ideology

This paper concerns a neglected aspect of Lucas’s work: his methodological writings, published and unpublished. Particular attention is paid to his views on the relationship between theory and ideology. I start by setting out Lucas’s non-standard conception of theory: to him, a theory and a model are the same thing. I also explore the different facets and implications of this conception. In the next two sections, I debate whether Lucas adheres to two methodological principles that I dub the ‘non-interference’ precept (the proposition that ideological viewpoints should not influence theory), and the ‘non-exploitation’ precept (that the models’ conclusions should not be transposed into policy recommendations, in so far as these conclusions are built into the models’ premises). The last part of the paper contains my assessment of Lucas’s ideas. First, I bring out the extent to which Lucas departs from the view held by most specialized methodologists. Second, I wonder whether the new classical revolution resulted from a political agenda. Third and finally, I claim that the tensions characterizing Lucas’s conception of theory follow from his having one foot in the neo- Walrasian and the other in the Marshallian-Friedmanian universe.Lucas, new classical macroeconomics, methodology

Have the early coordination failures models achieved Keynes’s programme ?

The aim of this paper is to assess how three seminal coordination failure models (Diamond ((1982)1991), Howitt (1985) and Roberts (1987) have fared against ‘Keynes’s programme’. The first part of the paper characterises Keyne’s programme as consisting of the following four objectives : (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, ad (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes’s programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes ‘ programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept.involuntary unemployment; coordination failures; Keynes

On the Right Side for the Wrong Reason : Friedman on the Marshall-Walras divide

The aim of this article is to assess Friedman’s claim, put forward in his 1949 article on the Marshallian demand curve, that there is a methodological divide between the Marshallian and Walrasian approaches. Friedman’s argument will be critically examined and compared with the views he expressed in other articles written around thesame time. My evaluation will lead to a mixed conclusion. Positively, Friedman must be hailed for having brought the Marshall-Walras divide to the forefront. In a more critical vein, I will suggest, first, that Friedman’s argumentation in the 1949 paper is definitely wanting. A better account of the differences between Marshall and Walras is to be found in his 1955 review of Jaffé’s traslation of Walras’s Eléments d’économie pure. Second, I will claim that Friedman’s real target in his 1949 article was imperfect competition theory à la Chamberlin and Keynesianism à la Lange, which he wrongly associated with Walrasian theory. Third, present-day proponents of the divide will be criticised for having naively echoed Friedman’s argumentation instead of having tried to improve it. The paper finishes with an outline of the criteria that should be used for giving te Marshall-Walras divide a stronger grounding.Friedma; Marshall; Walras

Getting rid of Keynes ? A survey of the history of macroeconomics from Keynes to Lucas and beyond

The aim of this paper is to recount the ebbs and flows of Keynesianism over the history of macroeconomics. The bulk of the paper consists of a discussion of the main episodes of the unfolding of macroeconomics (Keynesian macroeconomics, monetarism, new classical macroeconomics, real business cycle models and new neoclassical synthesis models) against the background of a distinction between Keynesianism as a ‘moderately conservative’ (Keynes’s words) vision about the working of the market system and as a conceptual apparatus. Particular attention is given to the contrast between Keynesian and Lucasian macroeconomics. The paper ends with a few remarks about the impact of the present crisis on the development of macroeconomic theoryKeynes, Lucas, history of macroeconomics

The Marshallian roots of Keynes’s General Theory

The aim of this paper is to elucidate Keynes's Marshallian lineage. I argue that the result of bringing out the Marshallian antecedents of the General Theory highlights Keynes’s failure to achieve the theoretical project he was striving at, namely to demonstrate an involuntary unemployment result in the arising of which nominal wage rigidity would play no role. In the first part of the paper, I reexamine Marshall’s theory of value. This section’s main conclusion is that no theory of unemployment is to be found in Marshall’s writings. In section two, I study the literature spanning from Marshall to Keynes, focusing on Beveridge, Hicks and Pigou, in order to see whether the lacuna present in Marshall’s writings happened to be filled. Documenting the emergence of the notion of frictional unemployment, I come to the conclusion that its arising went along with little theoretical elaboration. The third and last part of the paper is a critical reflection on the General Theory. I start by making the point that Keynes’s theory of effective demand ought to be viewed as an extension of Marshall’s analysis of firms’ short-period production decisions. This enables me to bring out the decisive role played by the wage rigidity assumption in Keynes’s reasoning. I claim that, except for this assumption, the differences between ‘effective demand à la Marshall’ and ‘effective demand à la Keynes’ are minor. I close my analysis of Keynes’s reasoning by showing that no real removal of the nominal rigidity assumption is to be found in chapter 19 of the General Theory.

New classical/real business cycle macroeconomics. The anatomy of a revolution

The aim of the present paper is to assess the new classical/real business cycle revolution, which dethroned Keynesian macroeconomics. In its first part, I critically discuss the microfoundations requirement that constitutes a cornerstone of the new approach and suggest an alternative, softer, formulation of it. The conclusion of this discussion is that the new classical/real business cycle revolution marked a transition from a soft to a demanding understanding of the microfoundations requirement. In the second part of the paper, I present additional salient traits of the new classical and the real business cycle stages of the revolution. While each of these stages brought a specific contribution to the revolution, I emphasize the decisive role played by Kydland and Prescott in re-orienting the type of work in which macroeconomists were engaged. Finally, in part three, I ponder upon the causes of this revolution. After presenting and assessing Prescott’s and Lucas’s accounts of the factors which gave rise to the new approach, I venture into muddier waters by raising the question of whether a political agenda underpinned the NC/RBC revolution.

Marshallian and Walrasian Theory, Complementary or Alternative Approaches ? The Views in Presence

The aim of this paper is to examine economists’ views about the relationship between Marshallian and Walrasian theory. Are the complementary, as is usually believed, or do they constitute alternative research programmes ? My paper compares two viewpoints on this matter, the conciliatory and the antagonistic views. After describing these, I present my own standpoint : I do believe that there is a Marshall-Walras divide but I have serious objections to the way n which the argument for this divide is usually made. In particular, I object to the tendency to treat the Marshallian approach as good and the Walrasian one as bad. In the last part of the paper, I dispute the view held by several authors that an embryonic general equilibrium model is to be found in Marshall’s Principles

The History of Macroeconomics Viewed Against the Background of the Marshall-Walras Divide

Analysing the recent history of macroeconomics, my paper claims that the new classical revolution should be viewed as a substitution of Walrasian macroeconomics to the earlier prevailing Marshalian macroeconomics. The first part of the paper is concerned with two conceptual prerequisites, the relationship between macroeconomics and general equilibrium, the meaning of the “Keynesianism” modifier. In a second part, the different facets of the Marshall-Walras divide are expounded. My general claim is substantiated in the third paper of the paper. Herein, I claim that the IS-LM model is a simplified Marshallian general equilibrium model while real business cycle models belong to the Walrasian reserach programme. Finally, I express my scepticism as to the possibility of a New Neoclassical Synthesis.History of macroeconomics; Neoclassical Synthesis; New Neoclassical Synthesis; Keynesianism; Monetarism

Microfoundations: a decisive dividing line between Keynesian and new classical macroeconomics?

It is often argued that what marks the difference between Keynesian macroeconomics and new classical macroeconomics (the first installment of dynamic stochastic general equilibrium models) is the presence of microfoundations. These are deemed to be absent in the Keynesian approach, but central to the new classical one. The aim of my paper is to critically discuss this view. Lucas and Sargent defined the microfoundations requirement as consisting of two elements, optimizing behavior and market clearing. I claim that an alternative, weaker, definition is conceivable, which can be traced back to Hayek and Patinkin. According to them, the microfoundations requirement consists of a single criterion, optimizing planning. This definition, I claim, is better than the new classical one. Next, I examine whether Keynesian macroeconomics, which admittedly does not abide by the Lucas-Sargent definition, does accord with the Hayek-Patinkin approach. My conclusion is that Keynes’s General Theory is indeed microfounded in this sense, although no single conclusion can be drawn for Keynesian models in general.microfoundations, Keynes, new classical macroeconomics

Lucas on the Lucasian transformation of macroeconomics: an assessment

Robert Lucas is rightfully credited with having changed the course of macroeconomic theory. The aim of this paper is to document his transformation from a potential contributor to Keynesian macroeconomics to the master builder of an alternative paradigm, equilibrium macroeconomics. I reconstruct Lucas’s theoretical journey as involving seven steps: (1) his pre-macroeconomic years, (2) his early work as a macroeconomist, jointly with Rapping, (3) the ‘Expectations and the Neutrality of Money’ 1972 article, (4) his inaugural equilibrium model of the business cycle, (5) his all-out attack on Keynesian macroeconomics, (6) the passing of the baton to Kydland and Prescott, and (7) his standpoint after the victory of the approach he so much contributed to launchLucas, new classical macroeconomics