Alvin Hansen

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Alvin Hansen
Born(1887-08-23)August 23, 1887
DiedJune 6, 1975(1975-06-06) (aged 87)
Nationality Danish-American
Institution Harvard University
Field Macroeconomics, political economics
School or
tradition
Neo-Keynesian economics
Alma mater University of Wisconsin–Madison
Yankton College
Influences John Maynard Keynes
Contributions IS-LM model
(Hicks-Hansen synthesis)
Secular stagnation theory
Scientific career
Thesis Cycles of prosperity and depression in the United States, Great Britain and Germany; a study of monthly data 1902-1908  (1918)
Doctoral advisor Richard T. Ely
John R. Commons
Frederic L. Paxson
Doctoral students Evsey Domar
Eva Mueller
Hyman Minsky
Richard Musgrave
Lloyd Metzler

Alvin Harvey Hansen (August 23, 1887 – June 6, 1975), often referred to as "the American Keynes", was a professor of economics at Harvard, a widely read author on current economic issues, and an influential advisor to the government who helped create the Council of Economic Advisors and the Social Security system. He is best known for introducing Keynesian economics in the United States in the 1930s.

John Maynard Keynes English economist

John Maynard Keynes, 1st Baron Keynes, was a British economist, trained mathematician, whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. He built on and greatly refined earlier work on the causes of business cycles, and was one of the most influential economists of the 20th century. Widely considered the founder of modern macroeconomics, his ideas are the basis for the school of thought known as Keynesian economics, and its various offshoots.

Economics Social science that analyzes the production, distribution, and consumption of goods and services

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In the United States, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration. The original Social Security Act was signed into law by President Franklin D. Roosevelt in 1935, and the current version of the Act, as amended, encompasses several social welfare and social insurance programs.

Contents

More effectively than anyone else, he explicated, extended, domesticated, and popularized the ideas embodied in Keynes' The General Theory. In 1967, Paul McCracken, chairman of the President's Council of Economic Advisers, saluted Hansen: "It is certainly a statement of fact that you have influenced the nation's thinking about economic policy more profoundly than any other economist in this century." [1]

<i>The General Theory of Employment, Interest and Money</i> book by John Maynard Keynes

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Paul McCracken (economist) American economist

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Early life and education

Hansen was born in Viborg, South Dakota on August 23, 1887, the son of Niels Hansen, a farmer, and Marie Bergitta Nielsen. Graduating from the nearby Yankton College (closed in 1984) in 1910 with a major in English, he enrolled in the University of Wisconsin-Madison in 1913 to study economics under Richard Ely and John R. Commons, from whom he learned to use economics to address pressing social problems. Upon completion of the coursework for the PhD in 1916. Hansen married Mabel Lewis: they had two children.

Viborg, South Dakota City in South Dakota, United States

Viborg is a city in Turner County, South Dakota, United States. The population was 782 at the 2010 census.

South Dakota U.S. state in the United States

South Dakota is a U.S. state in the Midwestern region of the United States. It is named after the Lakota and Dakota Sioux Native American tribes, who compose a large portion of the population and historically dominated the territory. South Dakota is the seventeenth largest by area, but the fifth smallest by population and the 5th least densely populated of the 50 United States. As the southern part of the former Dakota Territory, South Dakota became a state on November 2, 1889, simultaneously with North Dakota. Pierre is the state capital and Sioux Falls, with a population of about 187,200, is South Dakota's largest city.

Yankton College United States historic place

Yankton College is a defunct private liberal arts college in Yankton, South Dakota, United States, affiliated with the Congregational Christian Churches.

Academic career

He taught at Brown University while writing his doctoral dissertation, "Cycles of Prosperity and Depression". Upon completion of the dissertation in 1918 (published in 1921), he moved back west to the University of Minnesota in 1919, where he rose quickly through the ranks of a full teacher in 1923. Subsequently, his Business Cycle Theory (1927) and his introductory text Principles of Economics (1928, with Frederic Garver) brought him to the attention of the wider economics profession. His Economic Stabilization in an Unbalanced World (1932), written with the help of a Guggenheim grant that funded travel in Europe during 1928-1929, established Hansen in the broader circle of public affairs. He was elected as a Fellow of the American Statistical Association in 1932. [2]

Brown University University in Providence, Rhode Island

Brown University is a private Ivy League research university in Providence, Rhode Island. Founded in 1764 as the College in the English Colony of Rhode Island and Providence Plantations, it is the seventh-oldest institution of higher education in the United States and one of the nine colonial colleges chartered before the American Revolution.

University of Minnesota public research university in Minneapolis and Saint Paul, Minnesota, United States

The University of Minnesota is a public research university in Minneapolis and Saint Paul, Minnesota. The Minneapolis and St. Paul campuses are approximately 3 miles (4.8 km) apart, and the St. Paul campus is actually in neighboring Falcon Heights. It is the oldest and largest campus within the University of Minnesota system and has the sixth-largest main campus student body in the United States, with 50,943 students in 2018-19. It is the flagship institution of the University of Minnesota System, and is organized into 19 colleges and schools, with sister campuses in Crookston, Duluth, Morris, and Rochester.

In 1937 he received an invitation to occupy the new Lucius N. Littauer Chair of political Economy at Harvard University. His first book at Harvard posed the question Full Recovery or Stagnation? (1938) sketched the outlines of what came to be called the "secular stagnation thesis".

Harvard University Private research university in Cambridge, Massachusetts, United States

Harvard University is a private Ivy League research university in Cambridge, Massachusetts, with about 6,700 undergraduate students and about 13,100 postgraduate students. Established in 1636 and named for its first benefactor, clergyman John Harvard, Harvard is the United States' oldest institution of higher learning. Its history, influence, wealth, and academic reputation have made it one of the most prestigious universities in the world. It has often been cited as the world's top university by most publishers.

Later, his America's Role in the World Economy (1945) and Economic Policy and Full Employment (1947) made this case to a wider public. Hansen was appointment as special economic adviser to Marriner Eccles at the Federal Reserve Board in 1940 and he was in charge until 1945.

After retiring from active teaching in 1956, he wrote The American Economy (1957), Economic Issues of the 1960's and Problems (1964), and The Dollar and the International Monetary System (1965). He died in Alexandria, Virginia on June 6 of 1975 at the age of 87 years. [3]

Theories

His most outstanding contribution to economic theory was the joint development, with John Hicks, of the so-called IS–LM model, also known as the "Hicks–Hansen synthesis." The IS-LM diagram claims to show the relationship between the investment-saving (IS) curve and the liquidity preference-money supply (LM) curve. It is used in mainstream economics literature and textbooks to illustrate how monetary and fiscal policy can influence GDP.

Hansen's book of 1938, Full Recovery or Stagnation. based in Keynes's General Theory, presents his thesis for both growth and employment being stagnant if there is no economic state intervention to stimulate demand.

Hansen presented evidence on several occasions before the U.S. Congress to oppose the use of unemployment as the main means of fighting inflation. He advocated instead that inflation could be controlled by changes in interest- and tax-rates as well as controls on prices and wages.

Lately, theories of economic stagnation have become more associated with Hansen's ideas than with those of Keynes. [4]

Keynesianism

Hansen, in his review of The General Theory of Employment, Interest and Money , was skeptical of John Maynard Keynes's propositions, but by December 1938, in his presidential address to the American Economic Association, he embraced Keynesian theories of the need for government intervention in periods of economic recession. Soon after his arrival at Harvard in 1937, Hansen's famous graduate seminar on fiscal policy began inspiring graduate students such as Paul Samuelson and James Tobin (both of whom would go on to win the Economics Nobel) to further develop and popularize Keynesian economics. Hansen's 1941 book, Fiscal Policy and Business Cycles, was the first major work in the United States to entirely support Keynes's analysis of the causes of the Great Depression. Hansen used that analysis to argue for Keynesian deficit spending.

IS-LM model, displaying interest rates (i) on the y-axis and national income or production (Y) on the x-axis IS-LM-Kurve.JPG
IS-LM model, displaying interest rates (i) on the y-axis and national income or production (Y) on the x-axis

Hansen's best known contribution to economics was his and John Hicks' development of the IS-LM model, also known as the "Hicks–Hansen synthesis." The framework claims to graphically represent the investment-savings (IS) curve and the liquidity-money supply (LM) curve as an illustration of how fiscal and monetary policies can be employed to alter national income.

Hansen's 1938 book, Full Recovery or Stagnation, was based on Keynesian ideas and was an extended argument that there would be long-term employment stagnation without government demand-side intervention.

Paul Samuelson was Hansen's most famous student. Samuelson credited Hansen's Full Recovery or Stagnation? (1938) as the main inspiration for his famous multiplier-accelerator model of 1939. Leeson (1997) shows that while Hansen and Sumner Slichter continued to be regarded as leading exponents of Keynesian economics, their gradual abandonment of a commitment to price stability contributed to the development of a Keynesianism that conflicted with positions of Keynes himself.

Stagnation

In the late 1930s, Hansen argued that "secular stagnation" had set in so the American economy would never grow rapidly again because all the growth ingredients had played out, including technological innovation and population growth. The only solution, he argued, was constant, large-scale deficit spending by the federal government.

The thesis was highly controversial, as critics, such as George Terborgh, attacked Hansen as a "pessimist" and a "defeatist." Hansen replied that secular stagnation was just another name for Keynes's underemployment equilibrium. However, the sustained economic growth, beginning in 1940, undercut Hansen's predictions and his stagnation model was forgotten. [5] [6]

Economic cycles

One of the most important contribution to the economic theory by Alvin Hansen are the economic cycles. In his book Business Cycles and National Income, he defines the cycle as a fluctuation in: employment, output, and prices. The cycle is divided in two phases: expansion, extending from trough to peak; and contraction, extending from peak to trough.

Cycles by Alvin Hansen.jpg

For Hansen, there exist stable and unstable economic cycles. The instability is caused by displacement due to external shocks. Hansen claims that the business-cycle analysis must take into consideration technical progress, the money market, and expectations. [7]

Public policy

Hansen argued that the American economy during the Great Depression was not going through a particularly severe business cycle but through the exhaustion of a longer-term progressive dynamic. What Hansen had in mind was not just counter-cyclical public spending to stabilize employment but rather major projects such as rural electrification, slum clearance, and natural resource development conservation, all with a view of opening up new investment opportunities for the private sector and so, restoring the economic dynamism needed to the system as a whole. [3]

Hansen trained and arguably influenced numerous students, many of whom later held government posts, and he served on numerous governmental committees dealing with economic issues. The American Economic Association awarded him its Walker Medal in 1967. [8]

Hansen frequently testified before Congress. He advocated against using unemployment to control inflation. He argued that inflation could be managed by timely changes in tax rates and the money supply, and by effective wage and price controls. He also advocated fiscal and other stimuli to ward off the stagnation that he thought was endemic to mature, industrialized economies. Hansen was not without his critics, however; journalist John T. Flynn, for example, argued that Hansen's policies were de facto fascism, sharing alarming similarities with the economic policy of Benito Mussolini, the dictator of Italy. [9]

During the Roosevelt and Truman presidencies, Hansen served on government commissions and as consultant to the Federal Reserve Board, the United States Department of the Treasury and the National Security Resources Board. In 1935, he helped create the US Social Security system and, in 1946, he assisted in the drafting of the Full Employment Act, which, among other things, created the Council of Economic Advisors.

Between 1939 and 1945, he served as co-rapporteur to the economic and financial group of the Council on Foreign Relations' War and Peace Studies project, along with Chicago economist Jacob Viner. [10]

Hansen's advocacy (with Luther Gulick) during World War II of Keynesian policies to promote post-war full employment helped persuade Keynes to assist in the development of plans for the international economy. [11]

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References

  1. Miller (2002) p. 604
  2. View/Search Fellows of the ASA, accessed 2016-07-23.
  3. 1 2 American National Biography, New York: Oxford UP, 1999
  4. Hansen, Alvin H. Monetary Theory and Fiscal Policy, New York: McGraw-Hill, 1949
  5. Benjamin Higgins, "Concepts and Criteria of Secular Stagnation," in Lloyd Metzler, ed. Income, employment and public policy: essays in honor of Alvin H. Hansen (Norton, 1964), pp 82+
  6. Benjamin Higgins, "The Theory of Increasing Under-Employment," Economic Journal Vol. 60, No. 238 (Jun., 1950), pp. 255–274 in JSTOR
  7. Hansen, Alvin H. Business Cycles and National Income, London: Allen and Unwin, 1964
  8. Walker Medalists, American Economic Association
  9. Flynn, John T. (1944). As We Go Marching (Doubleday & Co, Inc), see Part III: The Good Fascism: America
  10. Michael Wala (1994). The Council on Foreign Relations and American Foreign Policy in the Early Cold War. Berghahn Books. p. 38. ISBN   1-57181-003-X. The rapporteurs of the Economic and Financial Group
  11. Donald Markwell, John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford University Press, 2006.

Primary sources

Secondary sources

Special issues of journals