Value and Capital: An Inquiry into some Fundamental Principles of Economic Theory

by John R. Hicks

1946 Second Edition published by Oxford at the Clarndon Press

Genres: Economics

352 pages, Paperback

First published January 1, 1939

Reviews

[Matt · Rating 5 out of 5]

It is safe to say that without JR Hicks, much of what we now understand as comprising the foundations of modern economics - especially in the aftermath of Keynes and his General Theory - would be hard to comprehend. From microeconomic notions such as the distinction between the income and substitution effects as well as the elasticity of substitution, to the canonical IS-LM model in early macroeconomics, JR was adept at developing simple tools with which to analyze and understand a diverse range of phenomena. But for all he is remembered by, there is still more to Mr. Hicks and his body of thought, and his Value and Capital remains a classic precisely because so many questions and conjectures he raises remain lively debates still to this day.

Once you get past the first two parts concerning partial and general equilibrium in static terms, the following two parts and their original treatment of a plethora of dynamic issues - consistent versus inconsistent expectations and plans among agents, stability of a market equilibrium, the possibility of dynamic inefficiencies, the qualitative change in market behavior towards instability when price expectations become elastic, the presence of a zero lower bound on rates of interest as a further destabilizer, the difficulties of treating capital in purely temporal terms (in Austrian terminology, the 'roundaboutness' of production) as well as aggregating heterogeneous capital goods over time, etc. - foreshadow many debates that followed in the subsequent decades, particularly the Cambridge capital controversies.

Also of note was his early recognition of the possibility of Sonnenschein-Mantel-Debreu results in general equilibrium, mainly that we might expect multiple equilibria when the excess demand curve for a market admits of multiple roots due to the at times reinforcing, at times offsetting interplay of the income and substitution effects over a range of possible prices and distributions across agents.

While many of these issues were swept under the rug of representative agent modeling and the drive towards rational expectations in the latter quarter of the century, many of the issues raised by JR and his contemporaries (including Keynes and the many schools of thought he inspired) are by no means settled, especially in the aftermath of the Great Recession which like the Great Depression of the 1930's inspired so many economists to dare to take up hard problems, ask difficult questions, and be willing to put forth novel answers.

I would strongly recommend Value and Capital to any economic student aspiring to join the professional ranks of the discipline. Mr. Hicks' clarity of prose, scope of inquiry, and ability to not let 'mathiness' get too much in the way (he leaves it to his appendix for more detailed treatments in purely mathematical terms) keep it accessible almost seventy years after its original publication, and the content remains a wellspring of inspiration for decades to follow.

[Julius · Rating 5 out of 5]

This book is a super interesting read because Hicks presents his profound ideas clearly with verbal argument instead of mathematics. A lot of the important microeconomics ideas are well presented here with deep insights. Mathematics shouldn't be the barrier to economics. If verbal and graphs are sufficient for a rigorous argument, there should never be a need to resort to math. As Hicks said, math will be very helpful only when we talk about many goods, but many ideas can be presented in the 2 goods cases. Overall great read and I especially like his treatment on firms dynamic.