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EC108 (Macroeconomics) – Guest Lectures
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EC108 (Macroeconomics) – Guest Lectures1st – What we can learn from Economic History (Roger Farmer) - Wicksell (1918): “If you hit a rocking horse with a stick, the movement of the
horse will be very different from the stick. The hits are the cause of the
1. 3 Skills (Macroeconomists): movement, but the system's own equilibrium laws condition the form of
- Understand: history of thought (How did we get where we are? What did our movement"
predecessors think?) and economic history (= to the economist as star maps are
to astronomy) 4. Rocking Horse Model:
- Develop: quantitative skills (statistics and mathematics ® formalize ideas) - Ragnar Frisch in “Propagation problems and impulse problems in economic
dynamics” (1933): further developed Wicksell analogy ® economy = self-
stabilizing rocking horse
5.The Great Depression (1929):
- Great Depression: follows a US market crash (1929) ® hard to see though the
lens of classical economics (ex. 1929-1932: stocks lost 84% of their value ® US
unemployment = 24% // ¯ growth 20% below trend)
® OR: unefficient response to mild shocks of a self-correcting system
6. Keynes in “The General Theory of Employment Interest and Money” (1936):
- Windy Boat Model = confidence matters (animal spirits), high unemployment
can persist for a very long time and responsibility of government to maintain full
employment ® economy = not self-stabilizing
A. History of thought: - Government Policy: Fiscal Policy (larger government (automatic stabilizers)
- Adam Smith in “The Wealth of Nations” (1776): invisible hand: “It is not from the reduces size of fluctuations and Monetary Policy (since 1951: central banks raise
benevolence of the butcher, the brewer or the baker that we expect our dinner, interest rates during booms and lower them during recessions)
but from their regard to their own interest” - Samuelson in Economics (1955): introduces neo-classical synthesis ® economy =
- David Hume in “The Quantity Theory of Money” (1752) Keynesian (short-run) and classical (long-run) ® Phillips curve = price-
adjustment equation connecting the long-run with the short-run
1. Marginalism:
- Lausanne School = Walras in “Éléments d’économie politique pure” (1899):
economic man = preference ordering ® can all markets can clear
simultaneously?
- Pareto in his “1st and 2nd Welfare Theorems” (formalizes Smith’s invisible hand)
2. Economic and Political Liberty:
- Walras and Pareto: removed human beings from their social context ®
formalized the invisible hand // lost the ability to talk about political liberty
- John Stuart Mill in “On Liberty” (1859)
3. Pigou:
- Pigou in “Industrial Fluctuations” (1927): rich classical theory of business cycles.
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