Weekend Reading: Mathew Forstater — Toward a New Instrumental Macroeconomics: Abba Lerner and Adolph Lowe on Economic Method, Theory, History and Policy

This paper argues that the ideas of Abba Lerner and Adolph Lowe contain overlapping and complementary insights and themes that may contribute to the development of a new approach to macroeconomics, and that have rather specific practical policy implications. This approach might be called Instrumental Macroeconomics, after Lowe's instrumentalism, but it could be termed Functional Macroeconomics after Lerner's functional finance without changing the intended meaning. 1 Terminology aside, what is required today is a macroeconomics that considers macro-policy goals at the ground level of theoretical practice (a political macroeconomics), a macroeconomics that recognizes that the system is dynamic and transformational, with major features changing over time (an historical macroeconomics), a macroeconomics that pays careful attention to institutional frameworks and arrangements (an institutional macroeconomics). What is required is a macroeconomics rid of neoclassical microfoundations, but that considers sectoral as well as aggregate relations (a structural macroeconomics), technological change as well as monetary production, and that avoids the unacceptable mechanism of aggregate models that bypass the complex problems of human agency by slipping in unacceptable motivational and behavioral assumptions.

The works of Lerner and Lowe serve as an interesting point of departure in thinking about such a new approach to macro theory and policy. While there are some important areas of overlap in their work and thought, Lerner and Lowe also have some important differences in areas of emphasis, which, it shall be argued, are strikingly complementary. Lerner's functional finance deals with aggregate proportionality and balance, while much of Lowe's work additionally emphasizes sectoral relations. While full employment and price stability were lifetime concerns of both, Lerner–following Keynes--focused more on monetary factors, while Lowe emphasized issues of structural and technological change. A Lowe-Lerner synthesis offers a powerful starting point in fleshing out an alternative approach to macroeconomic theory and policy, one which–because of its careful attention to historically changing social and institutional structures–is as fresh and relevant today as it was when Lerner and Lowe began formulating their historical and institutional approach to macroeconomic theory and public policy.

Abba Lerner and Adolph Lowe on Economic Method, Theory, History and Policy
Mathew Forstater | Professor of Economics, Director of CFEPS, UMKC