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Symposium on Michel De Vroey's “A History of Macroeconomics from Keynes to Lucas and Beyond”

Response to the Comments

Michel De Vroey
p. 149-152
Référence(s) :

Michel De Vroey, A History of Macroeconomics from Keynes to Lucas and Beyond, Cambridge: Cambridge University Press, 2015, 445 pages, ISBN: 9781107584945

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Crédits : Cambridge University Press

1I thank Jean-Sébastien Lenfant for having set up this symposium on my book on the history of macroeconomics. I enjoyed reading the comments by Fabrice Collard, Pedro Duarte and Francesco Sergi and thank them for taking the time to ponder upon my work. Luckily, their comments happen to be complementary. Sergi sets himself the task of informing the reader of the content of the book. In spite of being a good friend of mine (or because of it), Duarte takes the role of the villain in the play. For his part, Collard comes out as the macroeconomics insider giving me a hand in furthering some of the book’s insights. Let me respond to them in turn, starting with Duarte.

2In his comment, Duarte criticizes the relevance of Kuhn’s scientific revolution for the understanding of the unfolding of macroeconomics. In particular, he rebukes the veracity of the widely held view that Keynes’s General Theory was revolutionary in the Kuhnian sense, evoking David Laidler’s Fabricating the Keynesian Revolution in support of his viewpoint. In this book, Laidler forcefully brought out important lines of continuity between Keynes and his predecessors. Although to me the issue is a matter of the glass being either half-full or half-empty, I find Laidler’s argumentation appealing. The question is whether in my book I make the incriminated contention. The very fact that in Chapter 1 I claim that Keynes’s purpose was to amend Marshallian theory pleads to the contrary. More basically, the answer to the question is ‘No’ for the simple reason that I do not delve into the issue of the differences between Keynes’s predecessors and him. I checked the number of times the expression ‘Keynesian revolution’ appears in the book, leaving aside when I refer to other people’s work using it. It appears twice! Duarte’s interpretation is based on the second of these to be found in my wrapping up chapter page 379, too tiny a basis for his argument that De Vroey “carefully argues that there were two revolutions, the Keynesian and the Lucasian ones.”

3Were I asked about the book’s guiding principle, its structuring intuition, my answer would be Leijonhufvud’s decision-tree vision of the development of economic theory. It is true, however, that I characterize the change in macroeconomics’ practice triggered by Lucas as a revolution or a radical transformation—the word used does not matter. I have a full chapter (Chapter 10) justifying this claim. The latter’s validity should be assessed in reference to the arguments put forward in this chapter.

4There are two other criticisms in Duarte’s comment. Firstly, he states that my approach “imposes a great deal of ex post rationalization to the historical narratives and, thus, can be misleading by praising winners and relegating other authors, some of whom could have been influential at the time, to the dustbin of irrelevance”. For my part, I do not find it wrong to make ex post rationalizations or to observe that at certain points in time there are winners and losers. Adopting the decision-tree approach results in viewing victories and relegations as temporary and progress as limited to particular branches. (See for example Grossman’s quote on page 142 of my book).

5Duarte’s last and related criticism is that I insist too much on discontinuities and neglect continuities. Again, adopting the decision-tree apparatus amounts to writing a history of macroeconomics laden with controversies and disputes. I decided to delve into a few of these in details, believing that this was a useful enterprise. I hope that some of my readers will approve my choice.

6Behind Duarte’s critical remarks looms the view that there exist an alternative way of writing the history of economics, which seems his preferred one. He refers to Boumans’s and Morgan’s works, authors I respect. I surely wish that somebody (Duarte?) decides to write a history of macroeconomics on the pattern of Morgan’s work on the history of econometrics. My own way is to write a history of economic analysis targeting both historians of economics and macroeconomists. Others aim at studying the social and historical context in which theory is produced, boasting at doing History with a capital ‘H’. I regard these two approaches as complementary rather than as rivals. There are good and poor contributions in both of them. I just hope that mine belongs to the first category. Also, I look forward to receiving internal criticisms based on the acceptance of my approach, on top of remarks like Duarte’s bearing on its general relevance.

7Sergi does a superb job in presenting the project of my book, its contents and main contentions. Of course, I cannot but be flattered by his kind introductory remarks. Sergi has however one main complaint about it. In his words, it “assigns a crucial role to empirical aspects while refusing to discuss (i) how they evolved, and (ii) how this evolution interacted with the theoretical aspects”. There are several episodes in the history of macroeconomics implying an interaction between theory and measurement like Klein’s work, leading to the rise of structural models, the Lucas critique and its aftermath—Hansen and Sargent’s attempt at building structural models respecting the Lucas critique and Kydland and Prescott decision of escaping econometrics by resorting to calibration—the use of structural VAR modeling by new Keynesians, and finally Bayesian modeling à la Smets-Wouters. In my book, these developments are not sufficiently fully addressed, what constitutes a lacuna. The reason behind it is my limited competence in econometrics. I hope that these important issues will be discussed by other researchers.

8That said, I do not share Sergi’s views about the implications of my relative neglect. I do not believe that dealing with empirical issues requires a specific decision tree. Up to the creation of the Klein-Goldberger model, macroeconomics evolved as pure theory (i.e. unaccompanied with an empirical verification of theoretical propositions). Neither Keynes nor Harrod, Hicks and Meade bothered about empirical work. The Klein-Goldberger model inaugurated a new bifurcation (‘theory cum measurement’) which soon became mainstream, the ‘pure theory’ bifurcation being abandoned. Some backtracking occurred first with Patinkin, and later with non-Walrasian equilibrium economists. Both opted for a new bifurcation combining the Walrasian and the pure theory basic methodological choices. Lucas and Kydland and Prescott, for their part, were able to impose another bifurcation, a combination of the ‘Walrasian approach’ and the ‘empirical verification’ basic methodological choices. Sergi is right when noting that this last line, which I bluntly labeled Walrasian macroeconomics, strictly speaking, betrays the earlier vision of the Walrasian approach held by Walras himself, and later by Arrow, Debreu and McKenzie. However, I do not share his viewpoint that the Marshall-Walras divide is thereby made useless. A divide does not become irrelevant because mixed cases see the light of day.

9Considering that I wanted my work to be useful to present-day macroeconomists, Collard’s comments were particularly important to me. Therefore, his writing that it might be compelling reading in advanced macro classes is music to my ears. Collard’s paper is also a testimony of the fact that somebody like him must engage more in methodological discussion.

10 Collard could have pointed out several shortcomings in my book but instead he decided to zero in on more prospective issues related to the state of present research. His first remark concerns the three-equation system at the center of what I call ‘second generation new Keynesian modeling’. Wondering whether it fully abides by the Lucas critique, he states that this is the case outwardly but that on further scrutiny the matter is more ambiguous because of the presence of a few ad hoc assumptions. This underlying tension between methodological purity and the eagerness to depart from too a stratospheric level of abstraction is pervasive in macroeconomics, and the perfect mix is I am afraid unattainable. Yet I like it when theorists acknowledge the ambiguities of the modeling strategy they adhere to instead of doing as if everything were waterproof.

11His second remark concerns the representative agent assumption. The latter has been one of the main arguments against RBC modeling. For some good reasons, yet to my frustration, I decided not to discuss the works that have attempted to remove it, in particular Krusel and Smith’s seminal paper. Collard does a great job in summarizing their contribution thereby filling my book’s lacuna. The same applies to Collard’s remark pointing to recent works striving at mellowing the rational expectations assumption. Both remarks, a testimony of his inner knowledge of a vast and complex literature, show that present-day macroeconomics is far from the dire state evoked by its critics. This brings me to Collard’s last point. It relates to the widely proclaimed view that macroeconomics is in deep trouble because of its failure to have predicted the 2008 recession. In the book, I claim that there is no surprise here as RBC modeling can claim relevance only for economies experiencing moderate fluctuations. True, pre-crisis macroeconomics had devoted scarce attention to the financial sector of the economy. Therefore, indeed, the recession was a challenge for the profession. Hence the question that arose in the aftermath of the recession was whether the RBC apparatus would be able to come to grips with the phenomenon of a malfunctioning banking sector. Collard’s remarks bring out that, while it is still too early to draw clear conclusions, important progress has taken place. Thereby, one conclusion drawn in the book, namely that, for all its rudimentary character, the RBC apparatus has testified to a surprising ability of cumulative development and of bouncing back from apparently insuperable puzzles, is further confirmed.

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Michel De Vroey, « Response to the Comments », Œconomia, 6-1 | 2016, 149-152.

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Michel De Vroey, « Response to the Comments », Œconomia [En ligne], 6-1 | 2016, mis en ligne le 01 mars 2016, consulté le 23 mai 2017. URL : http://oeconomia.revues.org/2260

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Les contenus d’Œconomia sont mis à disposition selon les termes de la Licence Creative Commons Attribution - Pas d'Utilisation Commerciale - Pas de Modification 4.0 International.

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