A Critical Essay on Modern Macroeconomic Theory

Abstract

A book review of A Critical Essay on Modern Macroeconomic Theory by Frank Hahn and Robert Solow is presented.

A Critical Essay on Modern Macroeconomic Theory. By Frank Hahn and Robert Solow. Cambridge, Mass.: The MIT Press, 1995. Pp. viii, 159. $22.50.

In their preface, Hahn and Solow write: "We decided on this joint venture when we found that we shared the same unease with the "New Classical Economics" that was just then becoming dominant. [ . . . ] . . . we both regarded ourselves as neoclassical economists in the sense that we required theories of the economy to be firmly based on the rationality of agents and on decentralized modes of economic communication among them. Indeed, it was this general approach that led us to the view that the new macroeconomists were claiming much more than could be deduced from fundamental neoclassical principles. We thus set out to show this." The same rationale for writing the book is elaborated in the introductory chapter [pp. 1-71. At no place in the volume, however, do Hahn and Solow cite specific examples of logically offensive "claims" or furnish material for critical assessment of the nonpolemical merit of their few substantive arguments; for practical purposes, therefore, readers are left to speculate as to the intended target(s) of Hahn and Solow's critique.

My personal conjecture, based on repeated reading of the volume, is that the operative "target" of the book is not a definable body of "new Classical" economics at all, but consists instead of the amorphous, ideologically driven, literature favoring non-interventionist economic policies that accompanied the inauguration of such policies by numerous governments during and after the "Thatcher/Reagan" era of the 1980s. To suppose that contemporary non-interventionist writers-new classical or otherwise-derive inspiration from or owe anything directly to the writings of any "macroeconomist" born later than Adam Smith is arguable and, in my view, preposterous. If any "modern macroeconomist" has proffered explicit non-interventionist views on the basis of "new classical" theory, why do not Hahn and Solow spell this out in chapter and verse? Given the title of their book, most readers (like this reviewer) will expect Hahn and Solow to mention such "new classical" economists as Barro, King, Minford, Plosser, Sargent and Wallace; in fact, they mention none of them-not even in their list of references [pp. 157-58), much less in their skimpy index [p. 159].

It seems likely-as suggested in a dust-cover blurb-that one or more of the jerry-built models outlined in Chapters 2-6 of the Hahn and Solow volume will interest some economists. Personally, I thought none of them worth the effort required to make them sensible reading even as amateur science fiction. All the same, the book intrigued and intrigues me as a recent example of what Pareto called "social residue". Hahn and Solow claim to base their ideas ". . . about the right way to do macroeconomics" on so-called "fundamental neoclassical principles" that I believe are outdated if not silly-principles which in any case deserve no more respect from modern economists than Aristotle's physics receives from contemporary astrophysicists. Keynes has often been quoted for his comparison of the power of "ideas" as contrasted with "vested interests" in economic politics. In a similar vein, Hahn and Solow's "critical essay" impresses me as a demonstration of the power of residues-methodological preconceptions-compared with demonstrable results in the pseudoscientific discipline that Hahn and Solow implicitly identify as "modern macroeconomic theory."