(8) Keynes-Wicksell Monetary Growth Models

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Keynes-Wicksell (KW) models of monetary growth emerged in the mid to late 1960s and early 1970s and are most often connected to its two architects: Jerome Stein and Hugh Rose. The foundations for KW models, however, have a much earlier history in the line of macroeconomic thought stemming from a common foundation in Knut Wicksell's theories: Myrdal, Lindahl, Hayek and, of course, Keynes. The KW model arose in response to the lack of stability in Tobin models (cf. Hahn, 1966, 1969). More significantly, there is a sense in which Solow-Tobin-type monetary growth models remain unsatisfactory since they are "very un-Keynesian in spirit" (Hicks, 1965: 30): firstly, output growth is still supply driven, driven by the supply of labor, technically and biologically augmented; secondly, there is no idea given of an independent investment function which helps determine growth levels - as it determines output in short-run Keynesian macromodels. Rather, it tells us that savings constrains investment, precisely the supply-determined conception of equilibrium Keynes sought so forcefully to displace. Finally, it is not at all clear what the macroeconomics behind this type of growth model are. Presumably, growth models are supposed to be generalizations of macroeconomics from the short-run to the long-run (in the historical sense of the term). It is in filling some of these unanswered items that KW models may be useful.


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