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This page intentionally left blank Markets, Money and Capital SirJohnHicks(1904–89)wasaleadingeconomictheoristofthetwen- tieth century, and along with Kenneth Arrow was awarded the Nobel Prize in 1972. His work addressed central topics in economic theory, suchasvalue,money,capital,andgrowth.Animportantunifyingtheme wastheattentiontoeconomicrationality‘intime’andhisacknowledg- mentthatapparentrigiditiesandfrictionsmightexertapositiveroleasa bufferagainstexcessivefluctuationsinoutput,prices,andemployment. This emphasis on the virtue of imperfection significantly distances Hicksian economics from both the Keynesian and monetarist approaches. Containing contributions from distinguished theorists in their own right (including three Nobel Prize-winners), this volume examinesHicks’sintellectualheritageanddiscusseshowhisideassug- gestadistinctapproachtoeconomictheoryandpolicy-making.Itwillbe of great interest to scholars and students of economic theory and the historyofeconomicthought. roberto scazzieri is Professor of Economics at the University of Bologna, a Senior Member of Gonville and Caius College and Life MemberofClareHall,Cambridge. amartya sen is a Nobel laureate and Professor of Economics and PhilosophyatHarvardUniversity. stefano zamagni is Professor of Economics at the University of Bologna and Adjunct Professor of International Economics at Johns HopkinsUniversity. Markets, Money and Capital Hicksian Economics for the Twenty-first Century editedby Roberto Scazzieri, Amartya Sen and Stefano Zamagni CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521873215 © Cambridge University Press 2008 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2009 ISBN-13 978-0-511-48091-1 eBook (NetLibrary) ISBN-13 978-0-521-87321-5 hardback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. Contents List of fig ures page viii Listoftables x Listofcontributors xi Prefaceandacknowledgments xiii Betweentheoryandhistory:ontheidentityofHicks’s economics roberto scazzieri and stefano zamagni 1 PartI TheIntellectualHeritageofJohnHicks 1 Hicksonliberty amartya sen 41 2 Aneconomistevengreaterthanhishighreputation paul a. samuelson 49 3 Hicks’s‘conversion’–fromJ.R.toJohn luigi l. pasinetti and gianpaolo mariutti 52 4 DearJohn,DearUrsula(CambridgeandLSE,1935): eighty-eightlettersunearthed maria cristina marcuzzo and eleonora sanfilippo 72 5 Hicksandhispublishers andrew l. schuller 92 6 Hicksinreviews,1932–89:fromTheTheoryofWagesto AMarketTheoryofMoney warren young 109 v vi Contents PartII Markets 7 Hicksandtheemptinessofgeneralequilibriumtheory christopher bliss 129 8 HicksversusMarx?Onthetheoryofeconomichistory pierluigi ciocca 146 9 Hicks’snotionanduseoftheconceptsoffix-priceandflex- price marcello de cecco 157 10 OntheHicksiandefinitionofincomeinappliedeconomic analysis paolo onofri and anna stagni 164 PartIII Money 11 Historicalstylizationsandmonetarytheory alberto quadrio curzio and roberto scazzieri 185 12 Hicks:money,prices,andcreditmanagement omar f. hamouda 204 13 Core,mantle,andindustry:amonetaryperspective ofbanks’capitalstandards rainer masera 225 14 Asuggestionforsimplifyingthetheoryofassetprices riccardo cesari and carlo d’ADDA 252 PartIV CapitalandDynamics 15 ‘DistributionandEconomicProgress’afterseventyyears robert m. solow 277 16 Flexiblesavingandeconomicgrowth mauro baranzini 287 17 Theeconomicsofnon-linearcycles piero ferri 309 18 AperspectiveonaHicksiannon-lineartheory ofthetradecycle kumaraswamy vela velupillai 328 Contents vii 19 Capital,growth,andproductiondisequilibria:onthe employmentconsequencesofnewtechnologies harald hagemann 346 20 Capitalandtime erich w. streissler 367 21 Sequentialanalysisandout-of-equilibriumpaths mario amendola and jean-luc gaffard 382 References 405 Nameindex 433 Subjectindex 441 Figures 10.1 Ratio of expect ed to actual inflati on, 1970 –200 5 page 167 10.2 Househol d disposa ble inco me with and without Hicksia n correction(percentagechange),1971–2004 167 10.3 Rateofprofitandrealrateofreturnonfinancialassets associatedwithindustrialfixedcapital,1951–2003 171 10.4 Rateofprofitandrealcostofcapital,1951–2003 173 10.5 Realrateofreturnonfinancialassetsandrealcostofcapital, 1952–2003 174 10.A1 Householdconsumption:errorcorrectionrepresentation(a), 1971–2003 177 10.A2 Householdconsumption:errorcorrectionrepresentation(b), normalizedresiduals,1971–2003 178 10.A3 Householdconsumption:errorcorrectionrepresentation withdisposableincomepartiallyadjustedàlaHicks(a), 1971–2003 179 10.A4 Householdconsumption:errorcorrectionrepresentation withdisposableincomepartiallyadjustedàlaHicks(b), normalizedresiduals,1971–2003 180 12.1 Hicks’smodelinCapitalandGrowth:traverseI 213 13.1 EquityasapercentageofassetsforUScommercialbanks, 1840–1993 233 13.2 Aggregatesupplywithexogenouswagerates 234 13.3 Creditandmarketrisk:frequencydistributions 239 13.4 Portfoliocreditlosses 244 13.5 Capital/assetratiosofbankingsystemintheUnitedStates, theUnitedKingdom,andSwitzerland,1830–2000 245 17.1 Theendogenousfluctuationsoftheeconomy 318 17.2 Endogenouscycleswithboundedrationality 321 18.1 MultipleequilibriainAContributiontotheTheory oftheTradeCycle 332 18.2 TheGoodwincharacteristic 339 18.3 StablelimitcyclefortheGoodwincharacteristic 339 viii

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Sir John Hicks (1904-1989) was a leading economic theorist of the twentieth century, and along with Kenneth Arrow was awarded the Nobel Prize in 1972. His work addressed central topics in economic theory, such as value, money, capital and growth. An important unifying theme was the attention for eco