2. Modern Microeconomics and Macroeconomics

3. Several Paths u Mathematical Partial Equilibrium –Alfred Marshall General Equilibrium –Leon Walras Distribution –Wilfredo Pareto

4. Several Paths (cont.) u Non-Mathematical Laissez-faire –Austrian Economics Institutional –Thorstein Veblen

5. Mathematical

6. The Merging of Paths u Paul Samuelson combined Cournot, Jevons, Pareto, Edgeworth and Fisher and concluded that economics analysis had primarily two concerns: Equilibrium Stability Problem is that such formalism lead to little importance of partial equilibrium and more emphasis on Walras general equilibrium

7. Paul Samuelson u He had two texts that basically shaped the economic profession between the end of WWII until about the early to mid 1970s The undergraduate book, Economics, used graphs and was basically followed the Marshellian model The graduate book, Foundations of Economics, basically followed Cournot and Walras

8. Samuelson-Hicks u They took the geometry of the early 1900s and after WWII converted to the mathematics of the 1960s and to the present u To where Hal Varian suggests that models be built using the KISS criterion: Keep it simple, stupid The idea being find a problem and find a simple model and the generalized it However the emphasis remained strongly partial equilibrium

9. The counterweight u Milton Friedman The approach became known as the Chicago School Approach is Marshellian Economics as an engine of analysis rather than an abstract work of economic modeling u Gary Becker Took the simple concept of maximization to study a wide variety of issues

10. Modern Microeconomics u Utility still holds a strong position in the undergraduate study but game theory is slowly taking over at the graduate level u Pedagogy has created two different world: undergraduate and graduate….A Paul Samuelson legacy

11. Empirical Economics u Econometrics is the merging of Mathematical Economics and Statistics u In other words, the formulation of hypothesis from mathematical economics with statistics to formally test those hypotheses u Recall the earliest empirical work was the Gregory King and Charles Davenant law of demand

12. Henry Moore u Used statistical procedures to test JB Clark’s marginal productivity theory of wages, which predicted that MP=w u While there was problem with his analysis the important aspect of it was the fact that he used statistical tools

13. Henry Schultz u Noted that one got a different elasticity of demand if we regressed quantity on price or vice-versa u The importance here is that statistical measurement is not separate from theory

14. Macroeconomics u Jevon’s Sunspot Theory Related business cycles to the sunspot cycles u Henry Moore Trade cycles related to weather cycles

15. Heterodox Empiricist u Wesley C. Mitchell Institutionalist Saw statistics not as a way of testing economic theories Instead he saw theories as the stories one would give to explain empirical observations Initial approach of the National Bureau of Economic Research (NBER)

16. Simon Kuznets u Student of Mitchell Developed the modern national income accounting u Wassily Leontief organized data in the development of input-output models

17. Econometrics u E. J. Working first discussed the identification problem. If one correlates price and quantity does one get demand or supply u Ragnar Frisch and Jan Tinbergen develop first macroeconomic models System of equations

18. Trygve Haavelmo u Trygve Haavelmo is the first to argue that the use of statistics in economics implied that one was searching for probabilistic theories. u In other words, the statistics were part of understanding economic theory… Correlation between price and quantity does not explain supply or demand Theory needs to be part of the statistical construct

19. Cowles Commission u Alfred Cowles, wealthy investment advisor, sponsored a commission in 1932 to use Trygve Haavelmo approach to examine economic issues u Commission was first set in Colorado Springs, in 1937 moved to Chicago u In 1950s moved to YALE

20. Other Issues u Bayesian Econometrics u Experimental Economists