David Laidler. Macroeconomics in Retrospect. The Selected Essays of David Laidler.
'I have taught the History of Thought off and on from the beginning of my career', David Laidler writes in the Introduction to this entertaining and informative volume, 'starting with a full semester graduate course at Stanford in 1964, where I was a last minute replacement for Paul Baran after his sudden death' (p. ix). Laidler's research in the history of monetary economics began just a couple of years later and has continued ever since. Macroeconomics in Retrospect contains 19 essays, previously published between 1972 and 2004 but sensibly arranged in rough chronological order of the subject matter, beginning with Adam Smith and ending with monetarism; the final chapter is by way of a methodological epilogue, defending the value of studying the history of economic thought for macroeconomists. The title is just a little misleading: there is nothing much here on economic growth, non-monetary trade cycle theory, international trade or development issues, and Monetary Economics in Retrospect would have been a more accurate (but less marketable?) guide to the contents.
The first four papers are on classical monetary theory, as represented by Smith (chapter 1), Thornton and Bagehot (chapter 3) and Tooke (chapter 4); chapter 2 is devoted to 'rules, discretion and financial crises in classical and neoclassical economics'. The next five cover the late nineteenth and early twentieth centuries, including Marshall (chapter 5), the German hyperinflation (chapter 7), the two-interest-rate model (chapter 8) and the Austrian and Stockholm schools (chapter 9); chapter 6 reprints Laidler's provocative opening lecture at the 2001 ESHET conference in Darmstadt, where he used the example of bimetallism to demonstrate that the Quantity Theory was not always a doctrine for conservatives.
The long shadows of Keynes, Friedman and Lucas fall over the second half of the book. Chapters 10 and 11 deal with Hawtrey, Harvard and Chicago, and the delightfully irreverent chapter 12 on the long history of wage and price stickiness in the macroeconomic literature from Hume to Pigou proves that while New Classical Economics may indeed be New, it certainly is not Classical. In chapter 13 Laidler asks what was new about liquidity preference theory (less than you might imagine). This is followed by a secret history of the Quantity Theory in the Radcliffe Report (chapter 14), a brief account of Hicks's later monetary theory (chapter 15) and--the only paper not devoted to monetary economics, narrowly defined--a chapter from the Richard Lipsey Festschrift on the emergence of the Phillips Curve as a policy menu (chapter 16). As already noted, chapters 17 and 18 take a critical look at monetarism as an historical phenomenon, and chapter 19 criticises Lucas, Sargent and Wallace for taking extreme rhetorical liberties with the history of economic thought.
There is never a dull moment in David Laidler's essays. He writes relatively thick history, emphasising complexities and paradoxes, but with a very sharp pen and very strong opinions, forthrightly expressed. As an outsider, I was fascinated by the revelation of what seem to be deep fissures within the monetarist camp: Laidler's sympathies lie with the more nuanced analysis of Karl Brunner and Alan Meltzer, as opposed to the cruder and more populist approach of Milton Friedman. Laidler takes Friedman's references to general equilibrium much more seriously than most, arguing that he had thereby constructed a Trojan horse within which the New Classical invaders were able to launch their assault on the monetarist citadel: 'This Walrasian real economy of Friedman's 1969 essay, which is perhaps subject to aggregate stochastic shocks, and in which a demand for money derives from individual uncertainty, is not quite Lucas's New-classical system of (1972-1973); in particular, Friedman's reference, by no means the only one in his writings of this period, to "the solution of a system of Walrasian equations", should not be read as an early and conscious endorsement of Lucas's later insistence on equilibrium modeling. But it is nevertheless a manageable step from Friedman to Lucas, much more so than from Brunner and Meltzer to Lucas, for in their work the system of monetary exchange is explicitly presented as an alternative to the Walrasian system' (p. 384).
Laidler's critique of the New Classicals is as vigorous as anything that can be found in the Keynesian literature: 'New-classical economics was most assuredly good economics. The trouble was (and is) that its distinguishing predictions were inconsistent with the facts and that, as Karl Brunner (1989) made abundantly clear, a good deal of the problem stemmed from its refusal to postulate money wage and price stickiness. Its exponents have, therefore, either turned to "real" business cycle theory, which relies on applying the theoretically flawed concept of an aggregate production function to the very problem area, namely the cycle, where its flaws are most likely to prove misleading, and/or have begun to re-introduce the idea of money-wage-price stickiness into their models' (p. 283), thus raising the prospect of an impending merger between New Classical and New Keynesian macroeconomic theory. Old Keynesians get off lightly by comparison with this (and Post Keynesians barely rate a mention).
This is a valuable collection. It is for the most part well produced, though the quality of the photographic reproduction is not always up to Elgar's usual high standards, and I would have liked a subject index in addition to the five-page name index. Anyone with more than a passing interest in the history of monetary macroeconomics, though, will benefit from reading it.
J. E. King, Department of Economics and Finance, La Trobe University, Victoria 3086, Australia. Email: firstname.lastname@example.org.
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|Publication:||History of Economics Review|
|Article Type:||Book review|
|Date:||Jan 1, 2005|
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