The Theory of International Trade, Steady-state Analysis and Economics of Development

In one of her many lucid critiques of mainstream economics, Joan Robinson wrote: Micro questions — concerning the relative prices of commodities and the behaviour of individuals, firms and households — cannot be discussed in the air without any reference to the structure of the economy in which they exist and to the process of cyclical and secular change. Equally, macro theories of accumulation and effective demand are generalizations about micro behaviour: the relation of income to expenditure for consumption, of investment to the pursuit of profit, of the management of placements, in which financial wealth is held, to rates of interest and of wages to the level of prices results from the reactions of individuals and social groups to the situation in which they find themselves. Even the artificial conception of a stationary state has to be specified in terms of the behaviour of its inhabitants. [Emphasis added.] She went on to add that ‘if there is no micro theory, there cannot be any macro theory either’ (Robinson, 1977, p.1320). She approvingly quoted Hicks in the same article to the effect that models of steady growth (i.e. growing economy counterparts of the classical stationary state) are futile and the whole point of a steady state is to study disturbances (including policy shifts) that take the economy away from it.