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.

BREAKING DOWN '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.

RELATED TERMS
  1. Kenneth Arrow

    Kenneth Arrow was an American economist who won the Nobel Prize ...
  2. General Equilibrium Theory

    General equilibrium theory studies supply and demand fundamentals ...
  3. Competitive Equilibrium

    A competitive equilibrium is when profit-maximizing producers ...
  4. Douglass C. North

    An American economist and winner of the 1993 Nobel Memorial Prize ...
  5. Reinhard Selten

    An economist and mathematician who won the 1994 Nobel Memorial ...
  6. Neoclassical Growth Theory

    The neoclassical growth theory is an economic concept where equilibrium ...
Related Articles
  1. Investing

    Seven Controversial Investing Theories

    Find out information about seven controversial investing theories that attempt to explain and influence the market as well as the actions of investors.
  2. Investing

    How influential economists changed our history

    Find out how these five groundbreaking thinkers made contributions to financial theory that crossed over into many aspects of social history as well.
  3. Insights

    Where Does the Nobel Prize Money Come From?

    The cash award associated with the Nobel Prize has changed in value considerably since the first awards in 1901. But where does it come from?
  4. Investing

    Interest Rate Predictions With Expectations Theory

    The expectations theory uses long-term interest rates to predict future short-term interest rates.
  5. Insights

    American Economist Richard Thaler Wins Nobel Memorial Prize

    The University of Chicago's Richard Thaler has been recognized for his contributions to behavioral economics.
  6. Insights

    Seven Decades Later: John Maynard Keynes' Most Influential Quotes

    It's been 72 years since the influential economist died; here are some of his most influential quotes.
  7. Investing

    Redefining Investor Risk

    Changing the way you think about time and risk can change the way you invest.
  8. Investing

    Oil As An Asset: Hotelling's Theory On Price

    Not sure where oil prices are headed? This theory provides some insight.
  9. Investing

    The difference between finance and economics

    Learn the differences between these closely related disciplines and how they inform and influence each other.
RELATED FAQS
  1. Why is game theory useful in business?

    The concepts of game theory became a revolutionary interdisciplinary phenomenon, but they are still relevant for business ... Read Answer >>
  2. Are perfect competition models in economics useful?

    Take a look at some of the arguments made by the proponents and critics of the theory of perfect competition in contemporary ... Read Answer >>
  3. Why are there no profits in a perfectly competitive market?

    See why economic profits are theoretically impossible in a perfectly competitive market and why some economists use perfect ... Read Answer >>
  4. How do I differentiate between micro and macro economics?

    Differentiating between microeconomics and macroeconomics is primarily concerned with the difference of the scales of the ... Read Answer >>
  5. How do modern corporations deal with agency problems?

    Learn about ways capitalist investment markets regulate the principal-agent problems that arise with corporate management ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center