Who Was John R. Hicks?
Sir John R. Hicks was a British neo-Keynesian economist who received the 1972 Nobel Memorial Prize in Economics, along with Kenneth Arrow, for his advancement of general equilibrium theory and welfare theory. During his career, Hicks became well known for his contributions to labor economics, utility and price theory, macroeconomics, and welfare economics.
- John R. Hicks was a neo-Keynesian economist noted for his wide-ranging contributions to microeconomic and macroeconomic theory.
- Hicks was awarded the Nobel Prize in 1972 for his work in general equilibrium and welfare economics.
- Hicks’s major contributions to economic theory include the advances in microeconomic price and utility theory, the Hicks compensation test in welfare economics, and the IS-LM model in macroeconomics.
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 economics. 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.
During his career, John Hicks made several important contributions to economic theory, ranging from fundamental neo-classical price theory to macroeconomic modeling.
Hicks’s first book, Theory of Wages, developed the microeconomic of wage determination in competitive and regulated labor markets. In this work, Hicks introduced the concept of elasticity of substitution between capital and labor, which became his basis to dispute Karl Marx's theory by arguing that labor-saving technological progress does not necessarily reduce labor’s share of income. This book became a standard textbook on labor economics for decades.
Utility and Price Theory
In his early papers and his second book, Value and Capital, Hicks advance utility and price theory with his introduction of the Hicksian compensated demand curve, the concept of a composite goods to simplify demand modeling, and his exploration of the income effect and substitution effect. Hicksian price and utility models mathematically demonstrate how consumer preferences, price changes, and income interact to shape demand for goods, and are still used as foundational elements of price theory in microeconomics.
Also in Value and Capital, Hicks advanced the microeconomic analysis of interactions between markets by formalizing a model of comparative statics and introduced Walrasian general equilibrium theory to the English speaking world. These models show how changes in markets impact conditions in other markets and how all the individual markets in an economy interact to yield an overall equilibrium for all markets.
In welfare economics, Hicks is well known for his Hicks compensation principle, also known as Hicks efficiency. This concept can be used as a criterion to judge the costs and benefits of changes to the economy and economic policy by comparing the losses for the losers with the gains for the winners.
Hicks’s IS-LM model formalized Keynesian macroeconomic theory to show how an economy can be in equilibrium with less-than-full employment. The IS-LM model depicts macroeconomic equilibrium as a product of the interaction of financial markets and real goods markets. This model is a common classroom tool in macroeconomics and is sometimes used to assess macroeconomic stabilization policies, as well as economic fluctuations.