Introduction

During the first three decades after World War II, mainstream academic economists focussed their attention on developing and expanding the theoretical foundations for what is commonly called neoclassical economics, and on the development and application of econometric techniques to measure empirically the parameters of these theoretical models, and to test hypotheses about their properties. In micro-economics we saw the development of rigorous theoretical models of consumer demand, firm production, and cost functions; the foundations of competitive market equilibrium, with and without uncertainty; and the implications of a wide range of market imperfections (e.g. externalities, oligopoly, asymmetric information) on firm behavior and market performance. Econometric techniques to estimate the parameters of demand and cost functions, and to measure the effects of market imperfections on prices, costs, and other market attributes, were also developed and applied.

In macro-economics we saw the development of theoretical models to explain key determinants of aggregate economic activity – income, consumption, investment, inflation, unemployment, and economic growth. This work focussed initially on the rigorous theoretical articulation of the foundations of Keynesian economics, and then on alternative non-Keynesian and post-Keynesian models linked more closely with neoclassical micro-economic foundations of firm and consumer decision making, price and wage formation in markets, and investments in human capital. This theoretical work was accompanied by new econometric techniques to use macro-economic data to estimate the parameters of key aggregate economic relationships.