About John Hicks
I hold the Sir John Hicks Chair at LSE. The name “John Hicks” will be familiar to most economists. They probably also know that he received the 1972 Economics Nobel Prize jointly with Ken Arrow.
However, Hicks’ contributions have become so standard that many of us may not even realize they were originally due to Hicks. The purpose of this website is to collect his most important contributions in their original form. The following two quotes provide an apt summary of Hicks’ work:
Paul Samuelson: “Hicks was one of the last of an almost extinct species of scholars: a generalist who covered microeconomics and macroeconomics, mathematical economics and literary economics, pure theory and policy applications. He was part of no school; John Hicks was his own school.”
Frank Hahn: “A time may come when his citation index becomes small, but only because so much of what he wrote will have become identified with the subject of economics itself.”
Hicks taught at LSE from 1926 to 1935 and did his most important work while there.
Hicks' main contributions
- Concept of “elasticity of substitution”
- Result: an increase in the capital-labor ratio K/L increases the capital share RK/Y and decreases the labor share WL/Y if the elasticity of substitution is greater than unity σ>1
- Classification of technical change into “labour-saving,” “capital-saving,” and “neutral” (what is now called “Hicks-neutral”)
Develops the IS-LM model (see Figure 1 — there “IS-LL”)
Paul Samuelson writes: “With an important assist from Roy Harrod, Hicks did provide the IS-LM graphical diagram of The General Theory, which still best serves the realistic macro analysts at century’s end. Axel Leijonhufvud […] put forward the thesis that Keynes himself was different from and much greater than his General Theory disciples who formalized the 1936 system – Reddaway, Meade, Harrod, Hicks, Lange,…. I believe he got things 180° wrong: what counts in a serious discipline is its formulateable and testable hypotheses and not the elusive intuitions of even the subtlest genius.“
This is Hicks’ magnum opus.
- Spells out much of modern consumer and producer theory
- Concepts of “compensating varation” and “equivalent variation”
- Result that income effects can lead to badly behaved aggregate demand functions
- Idea of “temporary equilibrium” as in Grandmont and Piazzesi-Schneider
Lays the ground for much of modern economics, including Paul Samuelson’s “Foundations” book. Samuelson writes: “‘Value and Capital’ will take its place in history along with the classic works of Cournot, Walras, Pareto, and Marshall.”
- Argues in favour of using economics for making policy prescriptions (“welfare economics”) over pure positivism with this famous quote: “economic positivism might easily become an excuse for the shirking of live issues, very conducive to the euthanasia of our science.”
- Approach: welfare economics without inter-personal comparisons
- Defines “production efficiency” in the now-standard way (see Fig.2) and explains when Pareto improvements can be constructed
- Outlines what is now called the Kaldor-Hicks compensation criterion
Good writings on Hicks
Foreword to“John Hicks – His Contributions to Economic Theory and Application”(K. Puttaswamaiah, ed.)