The third part of the book deals with the new avenue opened by Samuelson in the early 1940s and subsequently followed by Oskar Lange and several researchers of the Cowles Commission. While in the early macrodynamic models of Tinbergen and other econometricians, instability remained often localized and manageable by a suitable economic policy, the questions raised by the reformulation of macrodynamic relations in ambiguously Walrasian terms by Samuelson raised new problems of global and systemic instability.
Samuelson largely avoided confronting those problems, notably by shirking from the analysis of the influence of falling wages on the economy. Although he was needled by Pigou and others to confront this problem, he never exactly explained why he would not consider it in his models of the economy; his insistence on stability via the correspondence principle, and his exchanges with Oskar Lange show that in fact, he considered wage movements mostly destabilizing, and thus unsuited for the application of comparative analysis.
A convinced and active socialist, Lange did not take so much precautions: his work at the Cowles Commission was specifically geared toward uncovering the destabilizing effects inherent in the economy, and he painted a grim picture of a collapsing world in his monograph. His ideas, written and communicated while he was the most influential researcher of the Commission and the (temporary) editor of Econometrica, had a notable—though not always devoid of criticism—impact on his students and peers—Hyman Minsky, Don Patinkin, Lawrence Klein…
Posts in this section:
- Walking the tightrope: Klein, Patinkin and Schelling on price flexibility and stability
- Waiting for the judgment day: Hansen, Samuelson, Pigou and Klein on the classical stationary state
- Bridging comparative statics and dynamics in Samuelson’s 1941 IS-LM model
- Out of the beaten path: Lundberg’s take on instability