Seven Schools of Macroeconomic Thought: The Arne Ryde Memorial Lectures

124 Pages·1990·0.818 MB·English

by  Edmund S. Phelps

Seven Schools of Macroeconomic Thought
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Arne Ryde
8 December 1944–1 April 1968
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Seven Schools of Macroeconomic Thought
The Arne Ryde Lectures
Edmund S.Phelps
CLARENDON PRESS · OXFORD
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Firstpublished1990
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BritishLibraryCataloguinginPublicationData
Phelps, EdmundS.(EdmundStrother)
Sevenschoolofmacroeconomicthought— (TheArneRyde
lectures)
1.Macroeconomics.Theories.
I.TitleII.Series
339.301
ISBN0 19828333 4
LibraryofCongressCataloginginPublicationData
Phelps,EdmundS.
Sevenschoolsofmacroeconomicthought:theArneRydelectures/
EdmundS.Phelps.
Includesbibliographicalreferences.
1. Macroeconomics.I.TitleII.Title:7 schoolsof
macroeconomicthought.III.Title:ArneRydelectures.
HB172.5.P4581990339–dc2089-49214
ISBN0 19828333 4
The Arne Ryde Foundation
Arne Ryde was an exceptionally promising young student on the doctorate programme at the Department of
Economics at theUniversityofLund. Hediedafteran automobile accidentin1968 whenonly twenty-threeyears old.
In his memory his parents Valborg Ryde and pharmacist Sven Ryde established the Arne Ryde Foundation for the
advancement of research at our department. We are most grateful to them. The Foundation has made possible
important activities to which our ordinary resources are not applicable.
In agreement with Valborg and Sven Ryde, we have decided to use the funds made available by the Foundation to
finance major arrangements. We have from 1973 arranged a series of symposia in various fields of theoretical and
applied economics. In May 1988 at Snogeholm Castle in Skane Professor Edmund S. Phelps held some lectures
entitled ‘Recent Schools in Macroeconomic Theory’, published here as the first issue in a series of Arne Ryde
Memorial Lectures. A new issue in the series is planned to appear about every second year. We are indeed glad that
Professor Phelps agreed to come to Sweden to give the first Arne Ryde Memorial Lecture.
Bjorn Thalberg
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Preface
This smallbookisa versionfor publicationoftheArneRydelectures givenatLund UniversityinMay 1988. Theyare
the first in a series of lectures under the sponsorship of the Arne Ryde Foundation.
It has been an unusual venture for me in a number of ways. There was, first, its method of total immersion. Though
not known for a love of oratory, I found myself talking about macroeconomic theory for eight or nine hours in the
space of two days. Happily, the audience of advanced students and assorted scholars managed to remain engaged the
whole time, and so did the speaker. This was a gratifying experience.
There was another departure. Until then I had always worked on my own ideas. But this enterprise used the studio
system, built around the producer. The subject of these lectures was entirelythe idea of Bjorn Thalberg, who as head
of the Ryde Foundation instituted the new lecture series. He suggested to me that one could divide macroeconomics
these days into a number of schools of thought and that there would be a wide audience for an appraisal of their
progress and prospects. The work of defining the schools and evaluatingthem was left to me. This arrangement was
conducive to more risk-taking, I suspect, than would have resulted had the whole responsibility for the enterprise
rested on me.
Theopportunitytoshare my views onpresent-day macroeconomicsseemstome tocome at therightmoment.Some
observersconsider macroeconomicstobeina sorrystate,confusedbyrecentexperienceand rivenbymethodological
dissension. I agree it is destructive when the more zealous participants wage a crusade to exclude or demote other
approaches and other questions. Some of the combatants, in the heat of battle, seem to see themselves in a Western
epic between good guys and bad guys, a second Methodenstreit a century after the first.
x PREFACE
To me, however, it is themost interestingtime in macroeconomics since the rise of micro-macro theory in the 1960s.
It is a time in which macroeconomists are again entertaining new hypotheses about the mechanisms governing the
economy and reaching out for a new ‘paradigm’—not all reaching in the same direction, of course. To me the recent
empirical puzzles and the increased diversity of approaches constitute another demonstration that no school can
expect its approach to be right for every place and period. Pluralism is best, and recurrent outbreaks of pluralism are
inevitable in any case.
I see seven living schools of thought to be of importance in macroeconomic theory today. These are all thriving
schools withan activeresearch programme, however numbered theirdays. Some once-important schools from which
the profession has moved away have not made it to the grand list.
Friends have suggested that the thesis of exactly seven extant schools is an artifice of the imagination, like the seven
pillars of wisdom or the seven kinds of ambiguity. I suspect they think that three or four macroeconomic schools
would be quite enough.
The distinctions I have made were a function of the aspects of macroeconomic theory to which I have been
particularly attracted. Much of my interest in macroeconomics has been directed to price-wage setting and to the role
ofexpectations, andmakingdistinctionsamongmodelswithrespecttothoseaspectsleadseasilytoalarger numberof
schools than are commonly defined.
Onedimensionalongwhichwecanclassifyschools ofthoughtpertains tothetreatmentofwagesand prices. Someof
the more recent models contain, explicitlyor implicitly, either real-wage rigidity in some sense or real-wage stickiness.
The contrasting asynchronicity models possess one or another kind of impediment to the adjustment of nominal
wages or prices, whichgives rise to a stickiness in the average wage or price level.(While in any day some wages may
bechanging,mostwagesorpricesaretemporarilyunchangingbecauseofthresholdorschedulingeffects.)Finallythere
is a great variety of models