Who Was John R. Hicks?
Sir John R. Hicks was a British economist who received the 1972 Nobel Memorial Prize in Economics, along with Kenneth Arrow, for his development of general equilibrium theory and welfare theory. During his career, he also conducted research on monetary policy, international trade and development economics. His well-known 1939 book, "Value and Capital," addressed value theory and general equilibrium theory.
Understanding John R. Hicks
Sir John R. Hicks was born in England on April 8,1904, and he died on May 20,1989. He was knighted in 1964 for his work in the economics field. Hicks was an English economist who made valuable contributions to general economic equilibrium theory In 1972, Hicks shared the Nobel Prize for Economics with Kenneth J. Arrow. During his career, Hicks taught at the London School of Economics, the University of Manchester and Oxford University. John Hicks is also known for his contribution to the IS-LM model, which depicts the relationship between interest rates and real output. The model was used to create subsequent models of aggregate demand and supply.
Hicks' Main Contributions to Modern Economics
Hicks made four major contributions to 20th-century economics. First, Hicks contradicted Karl Marx's theory and stated that labor-saving technological progress does not necessarily reduce labor’s share of income. Second, the Hicks' IS-LM diagram depicts John M. Keynes’s conclusion that an economy can be in equilibrium with less-than-full employment. Third, Hicks showed that value theory, which explains why goods have value, does not require the assumption that utility is measurable through his book "Value and Capital" published in 1939. Fourth, Hicks created a method for assessing the impact of changes in government policy through the application of a compensation test that compares the losses for the losers with the gains for the winners. Hicks's findings showed that if those who gain could compensate those who lost, even if they do not actually and directly compensate the losers, the change in policy would be efficient.
Hicks' LS-LM Model
Source: Economics Discussion
The IS-LM model is also called the Hicks-Hansen model or the general equilibrium model. It is a macroeconomic tool that shows the relationship between interest rates and assets markets. In the model, the intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves shows general equilibrium where supposed simultaneous equilibrium occurs in both interest and assets markets. However, there are two possible interpretations.
First, the IS-LM model explains the change in national income when the price level is fixed short-run. Second, the IS-LM model shows that the aggregate demand curve can shift. Therefore, this tool is sometimes used to assess stabilization policies as well as economic fluctuations.