I thought many on this list would be interested in this entry in the American National
Biography Online.
Humberto Barreto
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American National Biography Online
Lerner, Abba (28 Oct. 1903-27 Oct. 1982), economist and democratic
socialist, was born Abba Ptachya Lerner in Bessarabia, Russia,
the son of Eastern European socialists who moved to the Jewish
quarter of London's East End in 1912. His earliest influences
included a diverse collection of leftist intellectuals and movements,
from Maurice Dobb to Thorstein Veblen, from Marxists and Social
Democrats to Labor Zionists. After a series of false starts--he
was for brief periods a capmaker, rabbinical student, Hebrew
school teacher, and (failed) businessman--he accepted the London
School of Economics's offer in 1930 of its famous Tooke Scholarship.
He received a B.Sc. in economics in 1932, winning both the Gonner
and Gladstone Memorial Prizes, and his Ph.D., also from LSE,
in 1943, some time after he had moved to the United States.
Lerner's first contribution to the academic literature, "A Diagrammatical
Representation of the Cost Conditions in International Trade,"
was published in Economica (12 [Aug. 1932]: 346-56) even before
he had assumed his residential fellowship (1932-1934) at LSE,
but it foreshadowed, in form if not in substance, much of the
six decades of research that followed. The paper demonstrated
Lerner's soon renowned methods and analytical powers: he became
one of the few modern economic theorists whose reputation for
precision and sophistication did not rely on the use of abstract
mathematics. As the restatement of an "established" economic
principle, the work was also the first manifestation of Lerner's
durable commitment, unusual in an economist of his stature, to
the clarification and dissemination of the work of others, including
that of Gottfried Haberler. To the extent that his often became,
and sometimes remained, the "textbook" versions of fundamental
economic principles, his influence on the evolution of the discipline
is sometimes difficult to demarcate. Furthermore, the paper revealed
an intellectual commitment to the methods, if not the politics,
of mainstream economics, an obvious tribute to his conservative
mentors at LSE, Lionel Robbins and Friedrich von Hayek.
In 1933 Lerner became one of the founders and editors of the
Review of Economic Studies, which soon established a reputation
as an influential forum for concise theoretical research. He
also contributed an important article to the inaugural volume,
"The Concept of Monopoly and the Measurement of Monopoly Power"
(1 [June 1934]: 157-75), which opened one of the several lines
of research that later culminated in his dissertation and magnum
opus, The Economics of Control (1944). The paper's principal
contribution was its clear account of the formal requirements
for allocative efficiency, familiar to most economists as the
"Pareto conditions."
Lerner's second contribution to the Review of Economic Studies,
"Economic Theory and Socialist Economy" (2 [Oct. 1934]: 51-61),
was the first of several influential papers he published on the
theoretical foundations of "market socialism" between 1934 and
1938. With Oskar Lange, his LSE classmate and, later, vice president
of Poland, and American economist Fred M. Taylor, Lerner soon
acquired a reputation as one of the most prominent and formidable
advocates of the proposition that socialist economies could exploit
the "market mechanism" to realize desirable and efficient allocations.
(Although this is often called the Lange-Lerner Theorem, it was
Taylor's "The Guidance of Production in a Socialist State" [American
Economic Review (Mar. 1929)] that breathed new life into Enrico
Barone's vision of "rational" socialist planning.) The simple
but elegant rules outlined in these papers were then modified
and extended in Lerner's Economics of Control.
Lerner will also be remembered for his contributions to the
establishment of a "Keynesian tradition" in the United States,
and his "conversion" might be traced to the publication of Joan
Robinson's "The Theory of Money and the Analysis of Output" in
the remarkable first volume of the Review of Economic Studies
(Oct. 1933). In 1934-1935 a Leon Fellowship allowed Lerner to
spend six months in Cambridge, England, where he became one of
the first and few Cambridge outsiders to participate in the deliberations
of the "Political Economy Club," the "circus" of economists that,
including Robinson and John Maynard Keynes himself, devoted much
of its time to the discussion of the principles and policies
that would later become the foundation of Keynes's The General
Theory of Employment, Interest and Money (1936). Lerner's review
of Keynes's landmark treatise, published a few months later in
the International Labor Review (34 [Oct. 1936]: 435-54), was
both enthusiastic and, in the judgment of most historians of
economic thought, faithful.
After a brief period (1935-1937) as an assistant lecturer at
LSE, Lerner then traveled on a Rockefeller Fellowship (1937)
to the United States, where, with the exception of several brief
interludes in Switzerland (1950-1951) and Israel (1953-1956),
he remained until his death. Soon after his arrival, he published
a number of articles on the "new macroeconomics," which became
so closely identified with Keynesian principles that David Colander,
who would collaborate with Lerner on a "market anti-inflation
plan" in the late 1970s, could wonder "Was Keynes a Keynesian
or a Lernerian?" (Journal of Economic Literature [Dec. 1984]).
One of Lerner's best-known contributions to this tradition was
the "doctrine of functional finance." In his often-reprinted
Social Research (10 [Feb. 1943]: 38-51) paper, "Functional Finance
and the Federal Debt," he offered this definition: The central
idea is that government fiscal policy, its spending and taxing,
its borrowing and its repayment of loans, its issue of new money
and its withdrawal of money, shall all be taken with an eye only
to the results of these actions on the economy and not to any
established traditional doctrine about what is sound or unsound.
In practice, Lerner believed, this called for the state to (a)
ensure that the level of effective demand that was "appropriate"
in each period, which required increases in net (of taxation)
public expenditure in recessions and decreases in booms, and
(b) support the interest rate(s) consistent with the optimal
level of investment in new plant and equipment, which required
the state to lend funds when interest rates were excessive and
to borrow when interest rates were too low. In this context Lerner
also introduced his famous "steering wheel" metaphor for the
role of fiscal and monetary policies and also articulated his
still relevant critique of economists' "conventional wisdom"
concerning the burdens of an internal public debt.
Well before this paper was published, however, Lerner had moved
from the University of Kansas City (assistant professor, 1940-1942),
his first permanent U.S. academic appointment, to the New School
for Social Research (associate professor, 1942-1946; professor,
1946-1947). In a remarkable but peripatetic career, he would
also hold positions as professor at Roosevelt University (1947-1959),
Michigan State University (1959-1965), and the University of
California at Berkeley (1965-1971) and, as distinguished professor,
at Queen's College (1971-1978) and Florida State University (1978-1980).
"The Essential Properties of Interest and Money" (Quarterly
Journal of Economics [May 1952]) was another important, if less
influential, contribution to the literature on Keynesian economics.
It explored some of the most difficult and problematic sections
of Keynes's The General Theory, namely, those concerned with
the failure, either in principle or in practice, of the so-called
self correction mechanism, the centerpiece of classical macroeconomics.
In the still standard characterization of the mechanism, the
downward wage and price adjustments that should be associated
with depressed product and labor markets stimulate, through a
number of indirect channels, the demands for both. When economies
failed to self-correct, however, or when the self-correction
mechanism proved slow or unreliable, macroeconomists were forced
to consider whether this was a consequence of "wage and price
stickiness," or the absence of an "invisible hand." Keynes himself
seemed to endorse both positions--that is, wages were inflexible
downward but even if this were not the case, no self-correction
mechanism existed--but his rationale for the second position
was both opaque and controversial. In Lerner's careful restatement,
it is the expectation of further deflation, in a world where,
as an institutional matter, wages' and prices' deflation is never
smooth, that "short circuits" the self-correction mechanism.
Lerner was also the first of Keynes's disciples to be concerned
about the possible "inflation bias" of active stabilization policies.
In particular, he became convinced, even if he failed to convince
Keynes himself, that upward pressure(s) on wages and prices would
materialize, even in the absence of "labor force bottlenecks,"
before economies achieved "full employment" in the conventional
sense of the word. In his Economics of Employment (1951), Lerner
drew the distinction between "low full employment" and "high
full employment" and warned that, without policies to complement
the standard tools of demand management, wage and price inflation
would materialize at the former, not the latter. The distinction
is perhaps not as contrived as it first seems: almost two decades
later, Milton Friedman's influential "The Role of Monetary Policy"
(American Economic Review [Mar. 1968]) would introduce the notion
of the "natural rate of unemployment," a version of Lerner's
"low full employment."
From the 1950s onward, inflation became the principal focus
of Lerner's research, a reflection of his intellectual commitment
to discover the particular combination of policies that would
maintain both "high full employment" and stable prices. In the
process, he contributed much to the modern understanding of the
phenomenon, including its now familiar classification into "overspending
inflation," "administered inflation," and "expectational inflation,"
all of which were reviewed in his Flation (1972). He was one
of the first to understand that the classification of inflation
mattered inasmuch as the cure for the first type was the obvious
(demand reduction) one, while remedies for the second and third
would prove more elusive. He expressed the view that, because
administered, or cost-push, inflation arises from the inconsistent
claims of workers and capitalists on national income and expectational
inflation tends to be self-fulfilling, both can (and sometimes
do) manifest themselves well below full employment, in which
case reductions in public and private expenditure would reduce
inflation, but at the cost of increased joblessness.
Lerner's own solution, the product of joint research with David
Colander, is described in its most complete form in their MAP:
A Market Anti-Inflation Plan (1980), the last of Lerner's major
contributions to economics. Lerner and Colander proposed the
use of "tradeable permits"--an approach often associated with
environmental economists who deal with "externalities" of another
kind--that would in effect establish a market for permits to
increase prices faster than some predetermined rate. Whatever
the practical merits of their proposal, it exhibited Lerner's
lifelong commitment to the reliance on market-based ends to achieve
constructive social ends. He died in Tallahassee, Florida. He
was survived by his second wife and by two children from his
first marriage, which ended in divorce.
Bibliography
A fraction of Lerner's archives are available at the University
of California at Berkeley. The standard introduction to Lerner's
work is Selected Economic Writings of Abba P. Lerner, ed. David
C. Colander (1983), a collection that includes his most influential
articles, brief selections from the books mentioned here as well
as Everybody's Business (1961) and, with Haim Ben-Shahar, The
Economics of Efficiency and Growth (1975), and a number of unpublished
papers. The most comprehensive evaluations of Lerner's place
within the discipline are Tibor Scitovsky, "Lerner's Contribution
to Economics," Journal of Economic Literature 22 (1984): 1547-71,
and Irwin Sobel, "Abba Ptachya Lerner, 1903-1982: Six Decades
of Achievement," Journal of Post-Keynesian Economics 6 (1983):
3-19. For Lerner's own assessment of his role in the Keynesian
revolution, see David Colander and Harry Landreth, eds., The
Coming of Keynesianism to America (1996). For a critical review
of the Lange-Lerner literature on "market socialism," see Joseph
E. Stiglitz, Whither Socialism? (1994). An obituary is Martin
Bronfenbrenner, "Abba, 1903-1982," Atlantic Economic Journal
11 (Mar. 1983): 1-5.
Peter Hans Matthews
Citation:
Peter Hans Matthews. "Lerner, Abba";
http://www.anb.org/articles/14/14-01013.html;
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