| Keynesian economics | |
|---|---|
| Born | August 23, 1887 Viborg, South Dakota |
| Died | June 6, 1975 (aged 87) Alexandria, Virginia |
| Nationality | United States |
| Institution | Harvard University |
| Field | Macroeconomics, political economics |
| Alma mater | University of Wisconsin–Madison Yankton College |
| Influences | John Maynard Keynes |
| Influenced | John Hicks Paul Samuelson James Tobin Robert Solow |
| Contributions | IS-LM model (Hicks-Hansen synthesis) |
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. More effectively than anyone else he explicated, extended, domesticated, and popularized the controversial 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]
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Hansen was born to Danish immigrant parents at Viborg, South Dakota on the South Dakota frontier. After an English degree at Yankton College, he took his PhD in economics at the University of Wisconsin-Madison in 1918. He worked with institutionalists John R. Commons and Richard T. Ely, but did not adopt their approach. After his doctorate, Hansen taught at Brown University until his appointment at the University of Minnesota in 1923, where he specialized in business cycles. He consulted frequently in Washington and helped Edwin E. Witte to help draft the Social Security Act of 1935. In 1937 Hansen was appointed Lucius N. Littauer Professor of Political Economy at Harvard University.
Hansen's review of John Maynard Keynes's The General Theory of Employment, Interest and Money was skeptical, 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 Nobel Prize—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.
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 graphically represents investment-savings (IS) and the liquidity-money supply (LM), and can be used to illustrate 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. Ultimately, economic stagnation theories became more associated with Hansen than with Keynes.
Paul Samuelson was Hansen's most famous student. Samuelson credited Hansen's Full Recovery or Stagflation? (1938) as the main inspiration for his famous accelerator-multiplier business cycle model of 1948. 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 which conflicted with positions of Keynes himself.
In the late 1930s Hansen argued that "secular stagnation" had set in, so that 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 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.[2][3]
Hansen excelled at both scholarly works and popular expositions that helped people understand economic cycles and deficit spending. He trained and influenced hundreds of students, many of whom later held important government posts, and he served on numerous governmental committees dealing with economic issues. The American Economic Association awarded him its Walker Medal in 1967.
Hansen frequently testified before Congress. He advocated against using unemployment to control inflation. He thought that price inflation could be managed by timely changes in tax rates and money supply (Functional finance), and by effective wage and price controls. He also advocated fiscal and other stimulus to ward off the stagnation that he thought was endemic to mature industrialized economies.
During the Roosevelt and Truman presidencies Hansen was influential in shaping policy. He served on government commissions and as consultant to the Federal Reserve Board, the United States Department of the Treasury and the National Resources Planning Board. In 1935, he helped create the U.S. 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.[4]
Hansen's advocacy (with Luther Gulick) during World War II of Keynesian policies to promote post-war full employment helped persuade Keynes to help develop plans for the international economy that emphasized free trade.[5]
Hansen's 1953 book, A Guide to Keynes, (like Paul Samuelson's textbook Economics) promoted Keynesian economics in America and in many other countries after World War II.
Hansen was elected Vice President of the American Statistical Association and President of the American Economic Association.
He died June 6, 1975 in Alexandria, Virginia.[6]