Chapter Ǻ: Macroeconomics and Coordination ȀȁȈIt features such concepts as absence of the (supposed) Walrasian auction-
eer, incomplete and costly and imperfect information, false price signals,
sluggish price adjustments, quantity changes as well as price adjustments,
the duality of people’s decisions about particular transactions according
as they are or are not frustrated in accomplishing other desired transac-
tions, and the “income-constrained process” of infectious recession and
recovery.
A quite different group of self-styled Keynesians centered at Cam-
bridge University expresses sweeping skepticism about market-oriented
economic theory. In the United States, economists associated with the
Journal of Post Keynesian Economicsform still another school.
Some “monetarists” or “monetary-disequilibrium theorists” continue
active in the tradition of David Hume, Henry Ļornton, Clark Warbur-
ton, Milton Friedman, Anna Schwartz, Karl Brunner, and Allan Meltzer.
Ļeir influence has been eroded, however, by developments that have
made their formerly suggested policy of steady monetary growth no longer
applicable and also by misinterpretations of experience. Monetarism has
also suffered from attention paid to two schools that have distorted and
exaggerated certain of its tenets. Ļe New Classical economists (includ-
ing Robert Lucas, Ļomas Sargent, and Robert Barro) proclaimed ratio-
nal expectations and equilibrium always. (In effect, everything is always
coordinated, or almost so.) Ļeir position gained attention more because
of its coherence with theoretical and methodological fashion than because
of its empirical substance, later widely questioned (HowittȀȈȈǿ, chap.ȃ).
Ļe real-business-cycle school carried the exaggerations of New Clas-
sical economics still further. It interpreted macroeconomic fluctuations as
efficient responses to underlying real changes (as in technology) rather
than as consequences of monetary disturbances. Robert King, Charles
Plosser, and Edward Prescott have written along this line; Strongin (ȀȈȇȇ)
and Stockman (ȀȈȇȇ) provide convenient surveys. Gary Hansen and Ran-
dall Wright (ȀȈȈȁ) provide an example of tinkering with this theory to
rescue it from recalcitrant facts; they would do well to remember about
Ptolemy and epicycles. Gary Hansen and Edward Prescott conveyed the
impression, without explicitly saying so, that they were answering “yes”
to the question posed by the title of theirȀȈȈȂarticle, “Did Technology
Shocks Cause theȀȈȈǿ–ȀȈȈȀRecession?”
Both the New Classical and real-business-cycle schools tacitly attrib-
uted near-perfection to markets (including “efficient markets” in securi-
ties), as if their members were congratulating themselves on being “more