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Past Sense

As you read the story of macroeconomics that these pages tell, you might notice that it puts more stress on history than the leading textbooks do. Some of the leading textbooks have virtually no discussion of the past. Perhaps their authors believe that history will bore students. Or perhaps there are other reasons.

Many of the leading textbook authors are recognized as experts--they have reputations for being at the top of the profession. Their expertise is a primary reason that their books are selected. Professors often use the textbook as an authority and it is hard to do that if the textbook is not written by a big name in economics. Expert authors usually explain the theoretical approach that they think gives the best understanding of how the world works. There is no necessary role for history in this approach, but there is an alternative.

In macroeconomics there has always been considerable disagreement on how best to understand the world. The experts disagree. The history of ideas and events not only helps one understand why this disagreement exists, it is an interesting story in its own right. Macroeconomics has not seen slow and steady progress refining its basic and fundamental theory. Rather it has seen sharp turns, detours, and occasional retreats. Economic positions have been forged in intellectual wars and by the failures and successes that economists have had as their ideas have been used in the real world.

Not all history is equally important. Macroeconomics has roots that go back centuries. If you study American history, you will encounter several major controversies in the 19th century that were about macroeconomic issues. For example, early in the century Andrew Jackson battled the Second Bank of the United States and killed it, an outcome that had significant macroeconomic consequences. Fifty years later controversies involving the monetary roles of gold and silver excited the American public and were a key part of populist discontent and protest. However, the impact of these controversies on us today is minimal. Although the economists of the day were interested in and studied these dispute, these issues appeared and disappeared without significantly shaping the way the next generations of economists viewed the world.

The Great Depression of the 1930s did change the way a generation of economists viewed the world. The British economist John Maynard Keynes proposed a way to understand the Great Depression that attracted many of the brightest young economics students of his day. These economists, convinced that they had important new insights into how the world worked, invented macroeconomics as a separate subfield of economics. One of them, Paul Samuelson, wrote the textbook that become the standard economics textbook for the post-World War II era. It evangelized the "new economics" of the "Keynesian revolution" and raised macroeconomics to equality with microeconomics.

The Keynesian view of the world dominated other views in the 1960s and early 1970s. Although it always had critics, it was not argument but events and problems of the 1970s that caused the next generation of economists to renounce parts of the Keynesian faith. Ideas when tried often do not work as their proponents had expected, and when the Keynesian ideas were tried, they stumbled. Older, pre-Keynesian ideas saw a revival, and new ideas were developed to patch up the cracks in the Keynesian edifice. Some of these ideas were tried in the late 1970s and early 1980s in an attempt to curb inflation, and the results of that period have also shaped future economists.

In the chapters ahead we will try to make sense of how macroeconomists view issues and problems by discussing several conflicting views. We will often look at the past to understand how these ideas and theories fit into the big picture of macroeconomics. In our telling of macroeconomics, history is important, the past matters, and a sense of the past is often a key to the present.

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Copyright Robert Schenk