This chapter is dedicated to the debates around the notion of the multiplier and the possibility of “pump-priming” the economy found a new urgency with the 1937–1938 crisis of the American economy.
It was in this context that the study of the interaction between the accelerator and the multiplier led to one of the most well-known mathematical models of the business cycle, Samuelson’s multiplier–accelerator model. Samuelson presented this model after his discussions with Alvin Hansen, and he considered it to be in the continuity of the Clark-Frisch debate and a simplification of Tinbergen’s macro-dynamics. His contribution was essentially to present a fully functional mathematical model. Integrating two of the most central mechanisms of economic dynamics, completing it with numerical simulations and the identification of different stability regions based on two key parameters: the marginal propensity to consume and the marginal propensity to invest.
Just like the models developed by Kalecki, Tinbergen and Frisch, it was built with a specific vision whose originality was to give a specific role to public expenditures, a vision which was deeply rooted in the economic events of the late 1930s. It was
in particular directly linked to Hansen’s work developed at that time and his explanation of the sudden 1937 downturn, as well as the debates surrounding the role of budgetary policy as either a countercyclical measure, a pump-priming tool or a permanent remedy. At a time when the effects of public expenditures were discussed in relation with the crowding out effect of interest rate, Samuelson concentrated on new mechanisms responsible for depressions, although his model contributed to stir attention away from the trajectory toward the final equilibrium position which could be obtained, an important shift initiated at the same time in Europe by Tinbergen.
Posts in this section:
[chapter 7 posts]
Priming the pump: on some lessons learned from Samuelson’s 1939 accelerator-multiplier model
Questioning Samuelson’s dogma: Schelling on growth and cycles