This paper was written as the first draft of the invited Foreword for the book, Money and the Economy, by Apostolos Serletis. The paper provides a critical view of those areas in which methodology in economics deviates from that in the physical sciences, provides examples and illustrations of those deviations, and emphasizes those areas of and approaches to economic research that most closely correspond with the nature of research in the physical sciences.science; social science; politics; Federal Reserve; monetary policy

Barnett, William A.

English

Research Papers in Economics

Is Macroeconomics a Science? 
Foreword to Apostolos Serletis, Money and the Economy 
 
William A. Barnett 
University of Kansas 
January 2006 
 
  In his Foreword to Barnett and Samuelson (2006), Paul Samuelson (2006) wrote:   
 
 “I conclude with an unworthy hypothesis regarding past and present directions of economic research.  
Sherlock Holmes said, ‘Cherchez la femme.’  When asked why he robbed banks, Willie Sutton 
replied, ‘That's where the money is.’  We economists do primarily work for our peers' esteem, which 
figures in our own self-esteem.  When post-depression Roosevelt's New Deal provided exciting job 
opportunities, first the junior academic faculties moved leftward.  To get back ahead of their 
followers, subsequently the senior academic faculties shoved ahead of them.  As post-Reagan, post-
Thatcher electorate turned rightward, follow the money pointed, alas, in only one direction.  So to 
speak, we eat our own cooking.   
 
We economists love to quote Keynes’s final lines in his 1936 General Theory --- for the reason that 
they cater so well to our vanity and self-importance.  But to admit the truth, madmen in authority can 
self-generate their own frenzies without needing help from either defunct or avant garde economists.  
What establishment economists brew up is as often what the Prince and the Public are already 
wanting to imbibe.  We guys don’t stay in the best club by proffering the views of some past 
academic crank or academic sage.”  
 
For the benefit of those who do not meet Paul’s high standards of erudition, I here provide Keynes (1936, 
pp. 383-384) statement, to which Paul alludes in his Foreword:   
 
“Practical men, who believe themselves to be quite exempt from any intellectual influences, 
are usually the slaves of some defunct economist.  Madmen in authority, who hear voices in 
the air, are distilling their frenzy from some academic scribbler of a few years back.  I am 
sure that the power of vested interests is vastly exaggerated compared with the gradual 
encroachment of ideas ... Sooner or later, it is ideas, not vested interests, which are 
dangerous for good or evil.”  
 
  When I showed the first draft of Paul’s Foreword to some eminent economists, many reacted with 
shock and dismay.  One replied that Paul was accusing us all of being “a bunch of whores.” But the more 
that I thought about it, the clearer it became to me that Paul’s insights in his Foreword merit serious 
consideration.  As a result, I resisted pressures to request that his Foreword be toned down.  In fact, what 
Paul is saying in that Foreword has relevancy to what I have experienced in my own professional 
experiences, and is valuable in putting this important book by Apostolos Serletis into proper context. 
 
  When I founded the Cambridge University Press journal, Macroeconomic Dynamics, which I edit, 
I needed to write a statement of purpose to appear in the first issue.  The statement needed to include a 
definition of macroeconomics that could be used to motivate the intended focus of the journal.  I defined 
“macroeconomics” to be “dimension reduction.”  The reason is clear.  Macroeconomic policy cannot be 
implemented by reference to high dimensional models, in which there is no aggregation over goods or 
economic agents, or separability of structure into sectors that can be modeled independently.  Indeed, dimension reduction can be accomplished in a rigorous manner using aggregation theory, separability tests, 
and nonlinear dynamics.  But is such  rigorous formalism in dimension reduction typical of most 
macroeconomics?  I don’t think so, and many microeconomists and political scientists do not think so.  The 
dimension reduction typifying much macroeconomics is characterized by the use of untested, atheoretical 
oversimplifications.  If the oversimplifications are contradicted by empirical evidence, then an alternative 
to statistical hypothesis testing is sought to avoid the embarrassment.  As observed by Thomas Sargent, in 
his interview by Evans and Honkapohja (2005, pp. 567-568): 
 
“Calibration is less optimistic about what your theory can accomplish, because you’d only 
use it, if you didn’t fully trust your entire model, meaning that you think your model is 
partly misspecified or incompletely specified, or if you trusted someone else’s model and 
data set more than your own.  My recollection is that Bob Lucas and Ed Prescott were 
initially very enthusiastic about rational expectations econometrics.  After all, it simply 
involved imposing on ourselves the same high standards we had criticized the Keynesians 
for failing to live up to.  But after about five years of doing likelihood ratio tests on rational 
expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests 
were rejecting too many good models.  The idea of calibration is to ignore some of the 
probabilistic implications of your model, but to retain others.  Somehow, calibration was 
intended as a balanced response to professing that your model, though not correct, is still 
worthy as a vehicle for quantitative policy analysis.”  
 
  As Paul Samuelson (2006) has observed, the direction that the profession takes has a strong 
correlation with the existing direction of thought in other academic fields and in government.  The direction 
of causation is not always clear, but I agree with Paul that the causation often comes from outside the field 
of economics.  This direction of causation often is particularly evident in its effects on macroeconomics, 
which depends for its very existence upon its policy relevance.  Anyone who has worked for many decades 
in macroeconomics, monetary economics, and policy, has observed the frequent changes in direction, and 
the nontrivial correlation with the political winds that are blowing in the background.  For example, when I 
resigned from the Federal Reserve Board staff to accept a position at the University of Texas, after 8 years 
in the Board’s Special Studies Section, two high ranking officers of the Board’s staff entered my office and 
threatened me with harassment by the Board’s attorneys, if I ever were to become known in the press as a 
critic of Board policy.  Having always been dedicated to high tech scientific research, rather than to visible 
criticism of Board policy, I could not imagine the reason for that threat, but it is not irrelevant to 
understanding the nature of the connection between government policy and macroeconomic research. 
 
  During the years I was at the Board, Karl Brunner and Allan Meltzer were very visible critics of 
Board policy through their Shadow Open Market Committee.  But there was a difference in their degree of 
willingness to be cooperative with the Board.  Allan, who got along well with the Board, was often 
included among the semiannual meeting of the Academic Advisors to the Board.  On the other hand, Karl, 
who tended to be uncompromising in the nature of his policy advocacy, was banned from the Board building.  In fact, the security guards at the entrances were instructed never to permit Karl to enter the 
building.  Karl once confided to me that the rumors about the ban had done wonders for his career. 
 
  Prior to the three years of the “monetarist experiment” in the United States, the research staff of 
the Philadelphia Federal Reserve Bank produced a large document containing research supporting a change 
in policy direction --- the same change in direction that subsequently was adopted by Paul Volcker during 
the “monetarist experiment” years.  But that research at the Philadelphia Federal Reserve Bank was prior to 
the arrival of Paul Volcker as Chairman of the Federal Research Board.  As a result, the Board Staff at the 
time was instructed to crush the research at the Philadelphia Federal Reserve Bank and discredit its staff.
1  
The Board Staff succeeded to the degree that almost the entire research staff of the Philadelphia Federal 
Reserve Bank resigned.  Prior to their resignation, I was invited to the Philadelphia Federal Reserve Bank 
as a possible new hire, who might be able to help hold the staff together.  Although I had said nothing about 
this to the Federal Reserve Board, on the morning that I returned from Philadelphia to the Board Staff in 
Washington, D.C., I was called into the office of the Director of Personnel and given an immediate raise 
along with instructions not to help “those bad people” in Philadelphia.   
 
  Not long thereafter, when inflation was becoming intolerable to the Carter administration in 
Washington, Paul Volcker was moved from the New York Federal Reserve Bank to become Board 
Chairman in Washington, D.C.  He then instituted precisely the policies that had been advocated by the 
former staff at the Philadelphia Federal Reserve Bank.  Chairman Volcker, knowing that his staff had been 
geared up to oppose precisely that approach, did not confer with his large staff before his announced policy 
change.  Reputedly only about three staff members at the top were informed of the impending change.  The 
rest of us learned from the newspaper the next morning.  In fact the next morning, I had breakfast at the 
Board’s cafeteria and observed the stunned looks on the faces of the staff and bewildered conversations 
among us over our eggs and coffee.  In contrast, Carl Christ was visiting from Johns Hopkins University 
that day and joined us at that breakfast.  He was clearly amused and pleased by what had just happened. 
 
  Over the past 50 years, the frequency of changes in the choice of policy instruments and policy 
designs by the world’s central banks have been astonishing.  There has not been a clear trend in any one 
direction, with reversions to some of the oldest approaches being common and frequent.  Is this science, or 
is this politics?  If unanticipated shocks to the economy were to cause unemployment to rise dramatically, 
would the currently spreading fashion of targeting solely inflation continue?  If unanticipated shocks were 
to cause a return of double digit inflation, would the current emphasis on interest rates rather than on 
monetary service flows continue?  Is it really true that monetary quantity is harder to measure than the 
“natural” or “neutral” interest rate needed in Taylor rules?  Is the economy so simple that all that is needed 
                                                 
1 The resulting controversy made its way into the press.  See “The politicization of research at the Fed,” 
Business Week, July 16, 1979, pp. 106-115. to conduct monetary policy is an interest rate feedback rule, a Phillips curve, and perhaps one or two other 
equations?  With all economic theory being nonlinear, is it reasonable to believe that estimated or 
calibrated models should be linear?
2  Is it reasonable to believe that macroeconomic policy has no 
distribution effects, as is commonly assumed in macroeconomic models, despite the fact that most 
politicians advocate macroeconomic policies based precisely upon their distribution effects?  If there are no 
such distribution effects, why is there such a strong correlation between macroeconomic policy advocacy 
and political party affiliation?  Is it reasonable to continue to assume that monetary assets yield no own-rate 
of return, as assumed in many demand for money functions, despite the fact that currency and non-interest-
bearing demand deposit accounts have not dominated the money supply for over a half century?
3
 
  In short, as has been pointed out by Paul Samuelson (2006), we macroeconomists work within an 
environment of pressure and influence from our governments and societies.  While few are willing to 
recognize or admit the existence of those pressures or the influence of those pressures on our own work, a 
clear understanding of trends in macroeconomic research is not possible without recognition of the 
influence of the intellectual, societal, and political environment within which the research is conducted. 
 
  I started out as a rocket scientist (yes, a real one), after receiving my engineering degree from MIT 
in 1963.  I worked on the development of the F-1 booster rocket engine that got the Apollo Saturn vehicle 
off the ground.  I worked for a firm called Rocketdyne, which had that rocket engine contract from NASA.  
Although I changed professional directions, when I went back for my Ph.D., I have never forgotten what 
real science is.  The more that I think about what Paul Samuelson has written in his Foreword to Barnett 
and Samuelson (2006) and my experience as an economist for over 30 years, the more I recognize the depth 
of the insights provided by Paul in his short Foreword.  A not unrelated comment is Jim Heckman’s (2005) 
in his Minneapolis Federal Reserve Bank interview: 
 
“In economics there's a trend now to come up with cute papers in an effort to be cited as 
many times as possible. All the incentives point that way, especially for young professors 
who seem risk-averse rather than risk-taking after they get tenure. In some quarters of our 
profession, the level of discussion has sunk to the level of a New Yorker article: coffee-table 
articles about “cute” topics, papers using “clever” instruments. The authors of these papers 
are usually unclear about the economic questions they address, the data used to support 
their conclusions and the econometrics used to justify their estimates. This is a sad 
development that I hope is a passing fad. Most of this work is without substance, but it 
makes a short-lived splash and it's easy to do. Many young economists are going for the 
cute and the clever at the expense of working on hard and important foundational 
problems.”
4  
 
                                                 
2 See, e.g., Barnett and Binner (2004) and Barnett et al (2005). 
3 For the relevant extensions needed to incorporate own rates of return into monetary aggregation theory 
and internally-consistent demand for money functions, see Barnett and Serletis (2000). 
4 Jim, too, is a one-time rocket scientist.  He worked as a research mathematician for Martin Marietta, 
which produced the Titan missile and the manned orbiting laboratory launched by Titan.   This might all sound like “bad news” in its implications for macroeconomics as a science, and 
sadly is consistent with the views of many microeconomists (some of whom oppose the inclusion of 
macroeconomics in their academic departments).  But there also is “good news.”  There are some hard-core 
scientists who work in macroeconomics and monetary economics.  They do not respond to political 
pressures, they resist oversimplification, and they seek to advance macroeconomics in the uncompromising 
manner that characterizes real science.  They are willing to take on the difficult problems that often are 
assumed away solely for the convenience of economists.   
  That “good news” is what this book is about.  That is what Apostolos Serletis is about.  This is an 
important book for anyone who has a serious interest in what science has to say about modern 
macroeconomics and monetary economics.  This book emphasizes what real progress is being made to 
advance our entirely inadequate knowledge of the macroeconomy.  For an overview of the contents, see 
Serletis’s (2006) own introduction. 
 
 
 
 
  
References 
 
Barnett, William A. and Paul A. Samuelson (eds.) (2006), Inside the Economist’s Mind:  The History of 
Modern Economic Thought, as Explained by Those Who Produce It, Boston, Blackwell Publishing. 
 
Barnett, William A. and Jane Binner (eds.) (2004), Functional Structure and Approximation in 
Econometrics, Elsevier, Amsterdam. 
 
Barnett, William A. and Apostolos Serletis (eds.) (2000),  The Theory of Monetary Aggregation, Elsevier, 
Amsterdam.  
 
Barnett, William A., Barry Jones, Milka Kirova, Travis Nesmith, and Meenkashi Pasupathy (2005), "The 
Nonlinear Skeletons in the Closet,"  in:  Michael Belongia and Jane Binner (eds.), Money, Measurement, 
and Computation, Palgrave. 
 
Evans, George W. and Seppo Honkapohja (2005), “An Interview of Thomas Sargent,” Macroeconomic 
Dynamics, vol 9, no 4, September.  Reprinted in:  Barnett, William A. and Paul A. Samuelson (eds.) 
(2006), Inside the Economist’s Mind:  The History of Modern Economic Thought, as Explained by Those 
Who Produce It, Boston, Blackwell Publishing. 
 
Heckman, James J. (2005), “Interview with James J. Heckman,” The Region, Federal Reserve Bank of 
Minneapolis, June. 
 
Keynes, John Maynard (1936), The General Theory of Employment, Interest, and Money, New York, 
Harcourt, Brace & World, Inc. 
 
Samuelson, Paul A. (2006), “Reflections on How Biographies of Individual Scholars Can Relate to a 
Science’s Biography,” in:  William A. Barnett and Paul A. Samuelson (eds.) (2006), Inside the Economist’s 
Mind:  The History of Modern Economic Thought, as Explained by Those Who Produce It, Boston, 
Blackwell Publishing. 
 
Serletis, Apostolos (2006), “Editor’s Introduction,” Money and the Economy, World Scientific, 
forthcoming. 
 

and Apostolos Serletis (eds.) (2000), The Theory of Monetary Aggregation,

and Seppo Honkapohja (2005), “An Interview of Thomas Sargent,” Macroeconomic Dynamics,

Editor’s Introduction,” Money and the Economy, World Scientific,

Interview with James J. Heckman,” The Region, Federal Reserve Bank of

Milka Kirova, Travis Nesmith, and Meenkashi Pasupathy

Reflections on How Biographies of Individual Scholars Can Relate to a Science’s Biography,” in:

The General Theory of Employment, Interest,

Is Macroeconomics a Science?

Is Macroeconomics a Science?

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