Origins of Microeconomics and Macroeconomics

Origins of Microeconomics and Macroeconomics

Timothy Taylor 28/05/2019 4

Economists have written about topics that we would now classify under the headings of "microeconomics" or "macroeconomics" for centuries. But the terms themselves are much more recent, emerging only in the early 1940s. For background, I turn to the entry on "Microeconomics" by Hal R. Varian published in The New Palgrave: A Dictionary of Economics, dating back to the first edition in 1987.

The use of "micro-" and "macro-" seems to date back to the work of Ragnar Frisch in 1933, but he referred to micro-dynamics and macro-dynamics. As Varian writes:

Frisch used the words ‘micro-dynamic’ and ‘macro-dynamic’, albeit in a way closely related to the current usage of the terms ‘microeconomic’ and ‘macroeconomic’: 

"The micro-dynamic analysis is an analysis by which we try to explain in some detail the behaviour of a certain section of the huge economic mechanism, taking for granted that certain general parameters are given ... The macrodynamic analysis, on the other hand, tries to give an account of the whole economic system taken in its entirety (Frisch 1933)." 

Elsewhere Frisch gives a more explicit definition of these terms that is closely akin to the modern usage of micro and macroeconomics: ‘Microdynamics is concerned with particular markets, enterprises, etc., while macro-dynamics relate to the economic system as a whole’ .... 

John Maynard Keynes does not seem to have used the micro- and macro- language. But Varian quotes a passage from the General Theory in 1936  show that Keynes was quite aware of the distinction. Keynes wrote:

The division of Economics between the Theory of Value and Distribution on the one hand and the Theory of Money on the other hand is, I think, a false division. The right dichotomy is, I suggest, between the Theory of the Individual Industry or Firm and of the rewards and the distribution of a given quantity of resources on the one hand, and the Theory of Output and Employment as a whole on the other hand [emphasis in the original]. 

Varian points to a somewhat obscure economist P. de Wolff as the first to use "microeconomic" and "macroeconomic" in 1941. Varian writes:

The earliest published reference that explicitly uses the term ‘microeconomics’ that I have been able to locate is de Wolff (1941). De Wolff, a colleague of Tinbergen at the Netherlands Statistical Institute, was well aware of the macrodynamic modelling efforts of Frisch, and may have been inspired to extend Frisch’s use of ‘micro-dynamics’ to the more general expression of ‘microeconomics’. De Wolff’s note is concerned with what we now call the ‘aggregation problem’ – how to move from the theory of the individual consuming unit to the behaviour of aggregate consumption. ... He [de Wolff] is quite clear about the distinction between micro- and macroeconomics: 

"The concept of income elasticity of demand has been used with two entirely different meanings: a micro- and macro-economic one. The micro-economic interpretation refers to the relation between income and outlay on a certain commodity for a single person or family. The macro-economic interpretation is derived from the corresponding relation between total income and total outlay for a large group of persons or families (social strata, nations, etc.) [emphasis in original]."

In Varian's telling, the terms of macroeconomics start popping up in academic journals and even some lesser-used textbooks in the 1940s, are in widespread use by the mid-1950s, and first appear in Paul Samuelson's canonical intro economics textbook in the 1958 edition.

A version of this article first appeared on Conversable Economist

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  • Jim Magnus

    You made the topic really interesting.

  • Stevie Brennan

    When you lose an argument so hard you search on the Internet to learn economics.

  • Lauren Salz

    Thanks. I chose economics at school and am so excited. Hope I get it.

  • Curtis Mccluskey

    I prefer macro over micro....

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Timothy Taylor

Global Economy Guru

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

   

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