Econometrica Vol. 14 No. 4 1946
A Note on Macroeconomics
Abstract
IN an article published in the April, 1946, issue of this JOURNAL, Dr. Klein presents a new approach to the problem of the construction of macroeconomic values,1 a problem which has not yet been given the wide attention it deserves. Two criteria for aggregates are proposed in Dr. Klein's article: (1) if there exist functional relations that connect output and input for the individual firm, there should also exist functional relations that connect aggregate output and aggregate input for the economy as a whole or an appropriate subsection, and (2) if profits are maximized by the individual firms so that the marginal-productivity equations hold under perfect competition, then the aggregative marginal-productivity equations must also hold.2 In this note, we shall first show that these criteria are too restrictive and unnecessarily so. On the basis of our criticisms, we shall then attempt to establish different criteria for the construction of macroeconomic values in the general case. I. Let us first consider, in nonmathematical terms, what the first criterion really means. It means, as one can easily see after following carefully Dr. Klein's arguments, that the aggregate output must be independent of the distribution of the various inputs. If X represents the aggregate output and N and Z represent two aggregate inputs, labor and capital, the first criterion requires that X depends only on the magnitudes of N and Z, and not on the way in which N and Z are distributed among different individual firms, nor on the way in which N and Z are distributed among the different types of labor and capital within any individual firm. In other words, as long as N and Z are kept constant, the way in which they are distributed must be of no significance. It is obvious that this criterion is most unlikely to be satisfied in any practical case. If this criterion is strictly adhered to, one will find in most cases that either no aggregates can be found to fulfil this criterion, or, in the case where this criterion is satisfied by the manipulation of the construction of aggregates, the aggregates will become such monsters that they are completely void of any economic significance.3 The field in which macroeconomics may apply would then indeed be extremely limited.
- DOI
- 10.2307/1906911
- Volume
- 14
- Issue
- 4
- Pages
- 299
- Sources
- openalex crossref