The Stabilization of Price theory, 1920-1955

The Stabilization of Price theory, 1920-1955 - 20. The...

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20. The Stabilization of Price Theory, 1920–1955 Roger E. Backhouse Subject Economics » History of Thought DOI: 10.1111/b.9780631225737.2003.00021.x 20.1 The Neoclassical Synthesis in Historical Perspective In 1955, Paul Samuelson introduced the term “neoclassical synthesis” into his textbook: We shall again and again meet in later chapters what is called the “neoclassical synthesis.” According to this: if modern economics does its task so well that unemployment and inflation are substantially banished from democratic societies, then its importance will wither away and the traditional economics (whose concern is the wise allocation of fully employed resources) will really come into its own -almost for the first time. ( Samuelson, 1955 , p. 11) In this passage, Samuelson draws a contrast between the Keynesian theory of income determination, described simply as “modern economics,” and “traditional” microeconomics. Samuelson's rhetoric concerning the neoclassical synthesis made it clear that it was one of the central points, if not the central point, that he wanted his readers to learn. Readers were told that it was important to “insist” on it (p. 659). Nations were everywhere discovering that it worked (p. 624) and problems of international economics could be solved if the world mastered it (p. 676). He even expressed gratitude that the Russians had not discovered it (p. 733). The aspect of the neoclassical synthesis that has received most attention is the implied relationship between macroeconomics and microeconomics, and Samuelson's role in propagating the Keynesian revolution. Like Alfred Marshall before him, Samuelson clearly wanted to establish the scientific credentials of economics and one way to do this was to emphasize consensus within the profession and continuity with the past. This explains his frequent use of adjectives such as “traditional” and “classical.” It is in this vein that he claimed that “neoclassical economics,” namely the combination of “whatever is valuable in the older economics” and “modern theories of income determination,” was “accepted in its broad outlines by all but about 5 per cent of extreme left-wing and right-wing writers” ( Samuelson, 1955 , p. 212). It is, therefore, hardly surprising that he presented microeconomics as though it were uncontroversial and settled. One of the remarkable features of Samuelson's treatment of price theory is that, in complete contrast to the way he treated the theory of income determination, he played down the modernity of the theory that he was describing. He offered only minor hints that price theory had changed. For example, he wrote of the “kernel of truth in the older economics” having been separated from the “chaff of misleading applications” and about preserving “whatever is valuable” in the older economics ( Samuelson, 1955 , pp. 11, 212). The picture is one of older theories having been polished and refined, without any indication that this refinement might have involved a radical transformation of the subject.
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It would have been much harder to justify such a claim in or around 1920. Between the 1920s
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The Stabilization of Price theory, 1920-1955 - 20. The...

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