End of Macro-Economics
By David Simpson
Institute of Economic Affairs
$21.50 Paper Original
In 1973, the Institute published a paper by Ludwig Lachmann, the implications of which were described in the Editor's preface as 'Revolutionary'. Lachmann argued that economics had taken a wrong turn, relying too much on the analysis of macro-economic aggregates and losing sight of the subject's micro-economic foundations.
In his words, 'Macro-economic theories without micro-economic substructure are bound to rest upon rather hollow foundations'. Lachmann criticised some of the favoured macro-economic remedies of the 1970s (such as income policies) as depriving '...the market of its main function'.
Twenty years on, in Hobart Paper No. 126, Professor David Simpson takes up Lachmann's theme, arguing that many economists are still set on the wrong course and that there is an undue emphasis on macro-economic thinking. From his opening paragraph, Professor Simpson's message is clear:
"The essential distinguishing feature of the developed market economy is incessant qualitative change ... Aggregate concepts such as the natural rate of unemployment and the total quality of money obscure rather than clarify thinking about the market economy".
Series: IEA Hobart Paper
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