Revolution and Evolution in Twentieth-Century Macroeconomics

Revolution and Evolution in Twentieth-Century Macroeconomics

Michael Woodford

June 1999

The twentieth century has seen profound progress in economic thought. This has been associated, among other things, with the progress of economics to a fully autonomous disciplinary status, which had only begun to be established late in the nineteenth century, and with a very substantial improvement in the technical methods employed in the discipline, both in the elaboration of economic theory and in the statistical analysis of economic data. Over the past century economics has also come to play a more important role in the world at large. Economic advisors have become more important in the formulation of government policies and the policies of international organizations such as the IMF and the World Bank; economic theory has proven to be of practical use in the design and use of a world of new financial instruments; and economic ideas have become influential in a number of areas outside the discipline’s traditional boundaries, including sociology, political science, and legal studies.

Attempting to catalog, let alone evaluate, all of the important developments in so active a field over the entire century would be a task beyond the scope of a lecture of this length. As a result I have chosen instead to discuss a single, though important, strand in twentieth-century economic thought. This is the field of macroeconomics, the branch of economics concerned with fluctuations in the overall level of business activity, with the determinants of inflation, interest rates, and exchange rates, and with the effects of government policies