Classical Macroeconomics: Some Modern Variations And Distortions

273 Pages·2003·3.34 MB·English

by  James Ahiakpor

Classical Macroeconomics
Macroeconomics is easily the most unsettled area of modern economics.
Conflicting explanations abound over why interest rates or prices on average rise
or fall. Dispute continues over whether government tax policies should encourage
consumer spending or saving. Similarly, it is unsettled whether government
spending should be a principal instrument of economic growth promotion or
rather be limited to the minimal role of national defence, the administration of
justice, including the protection of private property and enforcement of contracts,
and the enactment of laws to facilitate commercial enterprise.
The classical economists, especially Adam Smith, David Ricardo, J.-B.Say,
and J.S.Mill, provided clarifications as well as answers to the above questions,
which Alfred Marshall carried into the twentieth century. However, failing to
interpret correctly economic concepts as employed by the classical economists,
John Maynard Keynes dismissed the classical explanations and conclusions as
being irrelevant to the world in which we live. The trauma of the Great Depression
and Keynes’s changed definition of economic concepts, aided by the work of
Eugen Böhm-Bawerk, have made it difficult for modern economists to fully
appreciate the classical insights. This book clarifies the classical explanations to
help resolve the continuing theoretical and policy disputes. Key chapters include:
(cid:127) On the definition of money
(cid:127) Keynes’s misinterpretation of the classical theory of interest
(cid:127) The classical theory of growth and Keynes’s paradox of thrift
(cid:127) The mythology of the Keynesian multiplier.
Professor James C.W.Ahiakpor teaches economics at the California State
University, Hayward, and was Department Chair, 1994–2000. His restatements
of classical macroeconomics have appeared in the History of Political Economy, Southern
Economic Journal, Journal of the History of Economic Thought, American Journal of Economics
and Sociology and Independent Review. He contributed to and edited Keynes and the
Classics Reconsidered (1998).
Routledge studies in the history of economics
1 Economics as Literature 11 Equilibrium and Economic
Willie Henderson Theory
Edited by Giovanni Caravale
2 Socialism and Marginalism in
Economics 1870–1930 12 Austrian Economics in Debate
Edited by Ian Steedman Edited by Willem Keizer, Bert Tieben and
Rudy van Zijp
3 Hayek’s Political Economy
The socio-economics of order
13 Ancient Economic Thought
Steve Fleetwood
Edited by B.B.Price
4 On the Origins of Classical
14 The Political Economy of
Economics
Social Credit and Guild
Distribution and value from William
Socialism
Petty to Adam Smith
Frances Hutchinson and Brian Burkitt
Tony Aspromourgos
15 Economic Careers
5 The Economics of Joan
Economics and economists in Britain
Robinson
1930–1970
Edited by Maria Cristina Marcuzzo, Luigi
Pasinetti and Alesandro Roncaglia Keith Tribe
6 The Evolutionist Economics of 16 Understanding ‘Classical’
Léon Walras Economics
Albert Jolink Studies in the long-period theory
Heinz Kurz and Neri Salvadori
7 Keynes and the ‘Classics’
A study in language, epistemology and 17 History of Environmental
mistaken identities Economic Thought
Michel Verdon E.Kula
8 The History of Game Theory, 18 Economic Thought in
Vol. 1 Communist and Post-
From the beginnings to 1945 Communist Europe
Robert W.Dimand and Mary Ann Dimand Edited by Hans-Jürgen Wagener
9 The Economics of W.S.Jevons 19 Studies in the History of French
Sandra Peart
Political Economy
10 Gandhi’s Economic Thought From Bodin to Walras
Ajit K.Dasgupta Edited by Gilbert Faccarello
20 The Economics of John Rae 32 John Ruskin’s Political Economy
Edited by O.F.Hamouda, C.Lee and Willie Henderson
D.Mair
33 Contributions to the History of
21 Keynes and the Neoclassical Economic Thought
Synthesis Essays in honour of R.D.O.Black
Einsteinian versus Newtonian Edited by Antoin E.Murphy and
macroeconomics Renee Prendergast
Teodoro Dario Togati
34 Towards an Unknown Marx
22 Historical Perspectives on
A commentary on the manuscripts of
Macroeconomics
1861–63
Sixty years after the ‘General Theory’
Enrique Dussel
Edited by Philippe Fontaine and Albert
Jolink 35 Economics and Interdisciplinary
Exchange
23 The Founding of Institutional
Edited by Guido Erreygers
Economics
The leisure class and sovereignty 36 Economics as the Art of
Edited by Warren J.Samuels Thought
Essays in memory of G.L.S.Shackle
24 Evolution of Austrian Economics
Edited by Stephen F.Frowen and Peter Earl
From Menger to Lachmann
Sandye Gloria 37 The Decline of Ricardian
25 Marx’s Concept of Money Economics
The God of commodities Politics and economics in
Anitra Nelson post-Ricardian theory
Susan Pashkoff
26 The Economics of James Steuart
Edited by Ramón Tortajada 38 Piero Sraffa
His life, thought and cultural heritage
27 The Development of Economics
Alessandro Roncaglia
in Europe since 1945
Edited by A.W.Bob Coats 39 Equilibrium and Disequilibrium
in Economic Theory
28 The Canon in the History of
The Marshall—Walras divide
Economics
Edited by Michel de Vroey
Critical essays
Edited by Michalis Psalidopoulos 40 The German Historical School
The historical and ethical approach to
29 Money and Growth
economics
Selected papers of Allyn Abbott Young
Edited by Yuichi Shionoya
Edited by Perry G.Mehrling and Roger
J.Sandilands 41 Reflections on the Classical Canon
30 The Social Economics of in Economics
Jean-Baptiste Say Essays in honor of Samuel Hollander
Markets & virtue Edited by Sandra Peart and Evelyn Forget
Evelyn L.Forget
42 Piero Sraffa’s Political
31 The Foundations of Laissez-Faire Economy
The economics of Pierre de A centenary estimate
Boisguilbert Edited by Terenzio Cozzi and
Gilbert Faccarello Roberto Marchionatti
43 The Contribution of Joseph 52 Competing Economic Theories
Schumpeter to Economics Essays in memory of Giovanni Caravale
Economic development and Sergio Nisticò and Domenico Tosato
institutional change
53 Economic Thought and Policy in
Richard Arena and Cecile Dangel
Less Developed Europe
44 On the Development of The 19th century
Long-run Neo-Classical Theory Edited by Michalis Psalidopoulos and
Tom Kompas Maria-Eugenia Almedia Mata
45 F.A.Hayek as a Political 54 Family Fictions and Family
Economist Facts
Economic analysis and values Harriet Martineau, Adolphe Quetelet
Edited by Jack Birner, Pierre Garrouste and and the population question in
Thierry Aimar England 1798–1859
Brian Cooper
46 Pareto, Economics and Society
The mechanical analogy 55 Eighteenth-Century Economics
Michael McLure Peter Groenewegen
47 The Cambridge Controversies in 56 The Rise of Political Economy in
Capital Theory the Scottish Enlightenment
A study in the logic of theory Edited by Tatsuya Sakamoto and
development Hideo Tanaka
Jack Birner 57 Classics and Moderns in
48 Economics Broadly Considered Economics Volume I
Essays in honor of Warren J.Samuels Essays on nineteenth and twentieth
Edited by Steven G.Medema, Jeff Biddle century economic thought
and John B.Davis Peter Groenewegen
58 Classics and Moderns in
49 Physicians and Political
Economics Volume II
Economy
Essays on nineteenth and twentieth
Six studies of the work of doctor-
century economic thought
economists
Peter Groenewegen
Edited by Peter Groenewegen
59 Marshall’s Evolutionary
50 The Spread of Political Economy
Economics
and the Professionalisation of
Tiziano Raffaelli
Economists
Economic societies in Europe, America 60 Money, Time and Rationality in
and Japan in the nineteenth century Max Weber
Massimo Augello and Marco Guidi Austrian connections
Stephen D.Parsons
51 Historians of Economics &
Economic Thought 61 Classical Macroeconomics
The construction of disciplinary Some modern variations and
memory distortions
Steven G.Medema and Warren J.Samuels James C.W.Ahiakpor
Classical Macroeconomics
Some modern variations and distortions
James C.W.Ahiakpor
LONDON AND NEW YORK
First published 2003
by Routledge
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada
by Routledge
29 West 35th Street, New York, NY 10001
Routledge is an imprint of the Taylor & Francis Group
This edition published in the Taylor & Francis e-Library, 2005.
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© 2003 James C.W.Ahiakpor
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in
writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Ahiakpor, James C.W., 1945–
Classical macroeconomics: some modern variations and
distortions/James C.W.Ahiakpor.
p. cm.
Includes bibliographical references and index.
1. Classical school of economics. 2. Keynesian economics.
3. Macroeconomics. I. Title.
HB94.A35 2003
339–dc21 2002037164
ISBN 0-203-41352-0 Master e-book ISBN
ISBN 0-203-41375-X (Adobe eReader Format)
ISBN 0-415-15332-8 (alk. paper)
To Michael, Andrew, and Daniel

Contents
List of figures xi
Preface xii
Acknowledgments xvii
1 Introduction 1
2 The classical theory of value: a foundation of macroeconomic
analysis 7
3 On the definition of money: classical vs modern 29
4 The classical theories of interest, the price level, and inflation 57
5 Keynes’s misinterpretation of the classical theory of interest 79
6 The Austrians, “capital,” and the classical theory of interest 96
7 Wicksell on the classical theories of money, credit, interest, and
the price level 114
8 Fisher, the classics, and modern macroeconomics 133
9 The classical theory of growth and Keynes’s paradox of thrift 144
10 Full employment: Keynes’s mistaken attribution to the classics 158
11 Hicks, the IS-LM model, and the success of Keynes’s distortions
of classical macroeconomics 177