Business Cycle Theory: Selected Texts, 1860-1939 (review)

"Before the 1930s, economists did not recognise a need for a special branch of economics, with its own special postulates, designed to explain the business cycle. Keynes founded that subdiscipline, called ‘macroeconomics,' because he thought explaining the characteristics of business cycles was impossible within the discipline imposed by its insistence on adherence to the two postulates (a) that markets clear and (b) that agents act in their own self-interest."

This description of economic thought before the General Theory comes from Robert Lucas and Thomas Sargent's 1978 article "After Keynesian Economics" (Lucas and Sargent [1978] 1984), and, to be fair to its authors, Keynes himself would not have entirely disowned it. Variations on this myth are widely believed, but the four volumes under review here thoroughly undermine it and rebuke the superficial scholarship nowadays prevailing in our leading departments of economics. This collection of papers on the business cycle spans the period 1860–1939, and not a word from Keynes is to be found in it, although he, along with such other notable absentees as Schumpeter, J. M. Clark, Hansen, Harrod, and Samuelson, will presumably turn up in one or more of the four subsequent volumes that will constitute the second and concluding set of this work.

Many of the usual suspects are here, however: John Stuart Mill on the credit cycle, Jevons on sunspots, Kitchin on short-term fluctuations, Kuznets on long waves, Fisher on money and debt deflation, Hawtrey on money, Pigou on psychological factors and the monetary system, Slutsky on summing random series, Frisch on impulses and responses, Mitchell on the need for theoretical eclecticism in the face of empirical evidence, and so on. There are also rarities from the English-language literature: John Mills writing on the "mental" element in the cycle in 1862; Alfred and Mary Marshall on wage stickiness and cyclical variation in real variables in 1879, and an older Marshall writing solo on fluctuations more generally in 1923; Henry Simons expounding the 1933 Chicago view of money and business cycles; Viner and Haberler offering radically opposed views of the role of monetary policy in a U.S. downswing that by 1932 was clearly getting out of hand; Dennis Robertson reviewing Aftalion and Tugan-Baranovsky in 1914, and in 1939 surveying the views of optimists, pessimists, and "Blondinians" (tightrope walkers) on the interwar experience. There are also some Continental contributions, long available in translation but not usually found in anthologies like this: Wicksell's 1907 paper titled "The Enigma of Business Cycles," Mises's 1924 exposition of what would become Austrian cycle theory, and Myrdal's 1931 critique of Wicksell's monetary theory, not to mention two generous helpings of Karl Marx.

Nevertheless, the particular value of Hagemann's collection to those whose reading fluency is confined to English lies in its inclusion of a substantial number of translations (from French, German, Italian, and Swedish), some original to this collection, and others whose previous appearances have been in sources hard to find in even above-average libraries: a hitherto untranslated 1908 paper by Wicksell; examples of the much neglected Italian tradition by Marco Fanno (1931) and Gustavo del Vecchio (1914); Erik Lundberg's 1930 essay "On the Concept of Economic Equilibrium"; and others that I shall mention below. Librarians who are disinclined to buy volumes consisting of reprints of material already on their shelves should take note of this.

Potential readers should also be encouraged by the felicity of the new translations, by Vincent Homolka of the German and Irena Hill of the Italian (contrast their translations with some of the older ones: Frank Knight's translation of Oskar Morgenstern...