Development and Underdevelopment in the History of Economic Thought

Rupture and continuity in the original divide between micro-dynamics and macro-dynamics

Carret Vincent, Université Lyon II

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.

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Keywords: micro-dynamic, macro-dynamic, Ragnar Frisch, Jan Tinbergen, Charles Roos, Paul Samuelson, cobweb, intertemporal optimization, causality

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