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The neoclassical synthesis (NCS), or neoclassical–Keynesian synthesis[1] is an academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936) with neoclassical economics.
The neoclassical synthesis is a macroeconomic theory that emerged in the mid-20th century, combining the ideas of neoclassical economics with Keynesian economics. The synthesis was an attempt to reconcile the apparent differences between the two schools of thought and create a more comprehensive theory of macroeconomics.
It was formulated most notably by John Hicks (1937),[2] Franco Modigliani (1944),[3] and Paul Samuelson (1948),[4] who dominated economics in the post-war period and formed the mainstream of macroeconomic thought in the 1950s, 60s, and 70s.[5]
The Keynesian school of economics had gained widespread acceptance during the Great Depression, as governments used deficit spending and monetary policy to stimulate economic activity and reduce unemployment. However, neoclassical economists argued that Keynesian policies could lead to inflation and other economic problems. They believed that markets would eventually adjust to restore equilibrium, and that government intervention could disrupt this process.
In the 1950s and 1960s, economists like Paul Samuelson and Robert Solow developed the neoclassical synthesis, which attempted to reconcile these two schools of thought. The neoclassical synthesis emphasized the role of market forces in the economy, while also acknowledging the need for government intervention in certain circumstances. According to the neoclassical synthesis, the economy operates according to the principles of neoclassical economics in the long run, but in the short run, Keynesian policies can be effective in stimulating economic growth and reducing unemployment. The synthesis also emphasized the importance of monetary policy in controlling inflation and maintaining economic stability. Overall, the neoclassical synthesis was a significant development in the field of macroeconomics, as it brought together two previously competing schools of thought and created a more comprehensive theory of the economy.
A series of developments occurred that shook the neoclassical synthesis in the 1970s as the advent of stagflation and the work of monetarists like Milton Friedman cast doubt on neo-Keynesian conceptions of monetary theory. The conditions of the period proved the impossibility of maintaining sustainable growth and low level of inflation via the measures suggested by the school.[6] The result would be a series of new ideas to bring tools to macroeconomic analysis that would be capable of explaining the economic events of the 1970s. Subsequent new Keynesian and new classical economists strived to provide macroeconomics with microeconomic foundations, incorporating traditionally Keynesian and neoclassical characteristics respectively. These schools eventually came to form a "new neoclassical synthesis", analogous to the neoclassical one,[6][7] that currently underpins the mainstream of macroeconomic theory.[8][9][10]
- ^ Mankiw, N. Gregory. "The Macroeconomist as Scientist and Engineer". The Journal of Economic Perspectives. Vol. 20, No. 4 (Fall, 2006), p. 35.
- ^ Hicks, J. R. (1937). "Mr. Keynes and the “Classics”; A Suggested Interpretation," Econometrica, 5(2), pp. 147–159. Retrieved 17 January 2022.
- ^ Modigliani, Franco (1944). Liquidity preference and the theory of interest and money," Econometrica 12(1), pp. 45–88. Retrieved January 17, 2021.
- ^ Samuelson, Paul A. (1948) Economics.
- ^ "The Neoclassical-Keynesian Synthesis". The History of Economic Thought Website. The New School. Archived from the original on June 5, 2002. Retrieved April 23, 2009.
- ^ a b Blanchard, Olivier Jean (1991), Eatwell, John; Milgate, Murray; Newman, Peter (eds.), "Neoclassical Synthesis", The World of Economics, London: Palgrave Macmillan UK, pp. 504–510, doi:10.1007/978-1-349-21315-3_66, ISBN 978-0-333-55177-6, retrieved April 2, 2021
- ^ De Vroey, Michel; Duarte, Pedro Garcia (January 1, 2013). "In search of lost time: the neoclassical synthesis". The B.E. Journal of Macroeconomics. 13 (1). doi:10.1515/bejm-2012-0078. ISSN 1935-1690. S2CID 55565404.
- ^ Woodford, Michael. Convergence in Macroeconomics: Elements of the New Synthesis. January 2008. http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf.
- ^ Mankiw, N. Greg. The Macroeconomist as Scientist and Engineer. May 2006. p. 14–15. http://scholar.harvard.edu/files/mankiw/files/macroeconomist_as_scientist.pdf?m=1360042085.
- ^ Goodfriend, Marvin and King, Robert G. The New Neoclassical Synthesis and The Role of Monetary Policy. Federal Reserve Bank of Richmond. Working papers. June 1997. No. 98–5. http://www.richmondfed.org/publications/research/working_papers/1998/pdf/wp98-5.pdf Archived 2014-09-04 at the Wayback Machine.