Following on from Perry’s observations about aggregates, it is perhaps
worth considering the General Theory and the development of national
income accounting. Keynes knew that he could piggyback on the
groundbreaking work on national income carried out by Clark and Kuznets in
the first half of the 1930s. For instance, by using Kuznets’s time series
data, Keynes was able to produce the first ever estimate of the marginal
propensity to consume. The General Theory also stimulated work on
consumption functions, liquidity preference, and stagnation theories, and
it remains an open question how rapidly work in these areas might have
progressed had the General Theory never been written.

A few years later, there was an opportunity to operationalise the General
Theory as a result of Meade and Stone’s, ‘National Income, Saving and
Consumption’, which was circulated by Keynes to Treasury officials in
December 1940. This had a major impact on the budget of July 1941 (the
‘Keynes budget’) via the 1941 White Paper entitled ‘An Analysis of the
Sources of War Finance and an Estimate of the National Income and
Expenditure in 1938 and 1940’. British Chancellor Wood was impressed and
was happy to be the political messenger boy; Wood’s additional approval of
a tax burden in excess of the level recommended by Keynes in order to keep
a lid on inflation was further testament to Keynes’s influence at this
time. With inflation falling significantly between 1940 and 1943, Keynes
was, it seems, proved right: his ideas had already become highly
influential, only a few years after the appearance of the General Theory.
All of this gives some credence to the argument that, notwithstanding
Frisch’s distinction, it was the General Theory as well as Keynes’s
prominent position in Whitehall which gave the kick start to
macroeconomics, at least in terms of formal policy making.

Bob


On Tue, August 30, 2011 23:11, [log in to unmask] wrote:
> A further issue is the modern association of macro with aggregates as
> opposed to individuals. Historically however the association was just as
> much with public (matters of state) as opposed to private. Arguably,
> macro was born when familiar phenomena of aggregate fluctuation came to
> be seen as matters of state. That implies that the question "which came
> first?" is not so much a matter of logical priority, as it is of
> political economy.
>
>
> Perhaps this explains the classification of trade vs. international
> finance. Think also monetary economics (central banks hence macro) vs.
> finance (Wall Street hence micro).
>
>
> Perry Mehrling
> ----- Original Message -----
> From: "Kevin Hoover" <[log in to unmask]>
> To: [log in to unmask]
> Sent: Tuesday, 30 August, 2011 5:08:13 PM
> Subject: Re: [SHOE] is macro prior to micro?
>
>
> I took the question as one of logical rather than historical priority.
> The explicit concepts of micro and macro (originally due to Frisch) are
> correlative, so that historically neither is first. On looking at
> micro/macro before the concepts were explicitly distinguished, for the
> most part, I believe that Gary Mongiovi has made the right points. Micro
> and macroeconomics are concepts developed in the 1930s. Of course, many
> of the questions that they address are much older, so we can
> anachronistically go back and label this idea "micro" and that idea
> "macro" but we do so at our peril, since the protagonists did not think
> that way. Steve Medema, while pointing out some of the difficulties of
> disentangling these ideas in earlier periods, illustrates the pitfalls:
> exactly why, for example, is it that
>
>
>
> Trade analysis is micro-side, international finance is macro-side.?
> Finance and trade are two sides of the same transaction and the aggregate
> trade between nations, which often concerned earlier economists, has an
> equally good claim to being macro as the aggregate financial flows that
> accompanied them. I think that the main reason that we find it easy to
> make this assignment is that that this is the way that many economists
> today talk -- perhaps with no better warrant -- and we project back.
>
> Kevin Hoover
>
>
> On 8/30/2011 12:57 PM, Medema, Steven wrote:
>
>
>
>
>
>
>
> "I would be very interested to hear a historical answer (along with the
> methodological answer) to the question of what side of the discipline
> seems to be foundational."
>
>
> I would argue that there is no historical answer here. One could
> certainly argue that the "economic" analysis that we find in Plato and
> Aristotle was tilted toward the micro side, but they were responding to
> macroeconomic upheaval. Aquinas, too, had a more micro bent in terms of
> topics covered, but his concerns and goals were social/macro.
> Mercantilism? Trade analysis is micro-side, international finance is
> macro-side. The classical analysis had substantial micro and macro
> elements, and I would argue that neither was a priori more important or
> foundational than the other for these authors. Smith was writing a
> treatise on growth (one could argue), but he grounded it in micro-side
> phenomena such as the division of labor and the appropriate structuring
> of the market environment. Someone enamored of micro-foundations of macro
> might well look at Smith and see someone who made micro foundational. But
> I believe this is to mis-read Smith?that for Smith, it was a whole, with
> one side (if one can even speak of such here) no more foundational than
> the other.
>
>
> The idea of dividing economic analysis between micro and macro is a much
> more recent phenomenon, and was by no means universally accepted.
> Friedman, for one, always resisted the attempt to separate the two, and
> his price theory course at Chicago included elements that most would put
> under the "macro" heading. There may or may not be a consensus now (or in
> recent decades) that the micro side is foundational. But if there is such
> a consensus, I would expect that it is the first time in the history of
> economics that there has ever been a consensus on this subject.
>
>
> Steve Medema
>
>
>
>
>
>
>
>
>
>
>
>
>
>
> --
> **************************************************************
> KEVIN D. HOOVER
> Professor of Economics and Philosophy
> Duke University
> Editor, History of Political Economy
>
>
> E-mail [log in to unmask] Webpage www.econ.duke.edu/~kdh9/ Telephone
> (919) 660-1876
> Fax (919) 684-8974
>
>
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>
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