Rupture and continuity in the original divide between microdynamics and macrodynamics

Abstract

In 1933, Ragnar Frisch introduced a distinction between micro-dynamics and macro-dynamics in his paper on "Propagation problems and impulse problems in dynamic economics." His claim that he proposed the first macro-dynamic analysis and that micro-dynamic schemes were limited to the dynamics of specific markets or behaviors had a lasting impact on the field. But the introduction of this separation created a narrative hiding what had been done before and introduced a tension between the two approaches. By going back to the content of micro-dynamic analysis, we are led to two lines of research that were pursued during the 1920s and early 1930s: cobweb models and intertemporal optimization. A pivotal economist for going beyond micro-dynamics was Jan Tinbergen, who had contributed to both these approaches, and went beyond with new analytical tools. However, the idea of intertemporal optimization met with some opposition when it was scaled up to the whole economic system. This prompted Frisch to propose his new approach, which met with immediate success as more schemes were proposed. Tinbergen was himself one of the first converts to macro-dynamics, but the links between the two approaches and the new tensions created by their separation remained. This tension between the newly created categories can be viewed as a result of opposing views on causality, which were rooted in differing mathematical approaches, a point explicitly made by the next generation.

A Micro Foundational Episode of the Early History of Macroeconomics: A 1932 Debate on Walrasian Economics and Multiple Equilibria

“…The exploration of small dynamic models at the beginning of the 1930s was a decisive step from the study of market dynamics to the study of what Frisch came to call "macrodynamic" models studying economic aggregates instead of markets and individual choices (Boumans, 2005: Chapter 2, esp. 33ff;Assous and Carret, 2022a: Chapter 2;Carret, 2022). In 1932, Tinbergen had already started to build up toward a more intricate model of the economy and its interdependencies.…”

“…Rather than a "lull," we see in the turn of the 1920s-1930s a pivotal moment when two alternative approaches of economic modeling were tested and debated, and the discussion between Koopmans and Tinbergen were a part of this debate. The importance of Koopmans' reply to Tinbergen in this respect is that it illuminates the difficulties of what became called the "microdynamic" approach by Frisch, who put a name on two existing tracks, one of which was abandoned by the leading econometricians of the day (Carret, 2022). The seemingly obscure debate examined here illuminates those two possible tracks, and the reasons for which Tinbergen and other econometricians made an informed choice to abandon Walrasian general equilibrium theory in favor of small macrodynamic models, setting the stage for a decades-long struggle of macroeconomics, peaking in the 1970s with the problem of microfoundations.…”

Wassily Leontief's Research Program: Science, Beliefs, Institutions

“…This role manifests in the construction of belief systems that shape and legitimize the construction and development of institutions. By "belief system," I mean that in order to has been addressed to some extent elsewhere, in the study of input-output in the Bureau of Labor Statistics (Kohli, 2001), of input-output and development economics (Akhabbar, 2019: Chapter VII) or in the diffusion of input-output as a tool in the planning process (Carret, 2022a).…”

“…6 Leontief had met with Chenery a few months earlier during the first international conference on input-output in September 1950, a conference organized in the Netherlands where input-output was also being developed by government agencies, alongside national accounting techniques. The rapidity of the diffusion of input-output and the way in which Leontief's scientistic discourse was able to convince technocratic elites, does not tell us anything about the way in which it was received and used, especially at the level of national planning where its application proved impossible (Carret, 2022a). Instead of taking up this problem, in order to understand Leontief's view of academic economics, we now turn to his debates, conflicts, and cooperations with other research programs.…”