John Richard Hicks was a British neo-Keynesian economist. Hicks was born in the United Kingdom in 1904 and studied at Oxford University where he also lectured. During his career, Hicks became well known for his contributions to labor economics, utility and price theory, macroeconomics, and welfare economics. He received the 1972 Nobel Memorial Prize in Economics, sharing it with Kenneth Arrow for their advancement of general equilibrium theory and welfare theory.
- John R. Hicks was a neo-Keynesian economist.
- He was noted for his wide-ranging contributions to microeconomic and macroeconomic theory.
- His 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.
- Hicks was awarded the Nobel Prize in 1972 for his work in general equilibrium and welfare economics.
- Hicks was born in 1904 and died at the age of 85 in 1989.
Early Life and Education
John R. Hicks was born in the United Kingdom in Warwick on April 8, 1904. He studied at Clifton College and Oxford University between 1917 and 1926 where he focused on economics, math, philosophy, and politics.
After graduating, he lectured at the London School of Economics and Political Science from 1926 to 1935. He also taught at Cambridge University and the University of Manchester before returning to Oxford in 1946.
Hicks married fellow economist Ursula Webb in 1935. The couple had no children. He was knighted in 1964 for his work in economics and was awarded the Nobel Prize in 1972. Hicks died on May 20, 1989.
Hicks' wife, Ursula Webb, was one of the founders of the Review of Economic Studies. The academic journal was established in 1933 for young economists.
Hicks made several important contributions to economic theory during his career. These contributions ranged from fundamental neoclassical price theory to macroeconomic modeling.
Honors and Awards
Hicks was awarded the Nobel Prize in 1972. He shared the honor with Kenneth J. Arrow, another neoclassical economist. Their work on general equilibrium analysis and welfare economics earned them the award. Before he was awarded the Nobel Prize, Hicks was knighted in 1964. He also received a number of honorary doctorate degrees from several universities in the U.K.
Hicks’ first book, Theory of Wages, developed the microeconomics of wage determination in competitive and regulated labor markets. In this work, he 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.
In his early papers and his second book, Value and Capital, he advanced the utility and price theory with his introduction of the Hicksian compensated demand curve. He also explored the concept of composite goods to simplify demand modeling along with the exploration of the income effect and substitution effect.
Hicks also advanced the microeconomic analysis of interactions in Value and Capital 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.
Hicks is well known for making four major contributions to the field of economics. His first is the elasticity of substitution. It was used to demonstrate how labor-saving processes don't have a direct impact on the reduction of the share of national income.
Hicks’ 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.
His book Value and Capital, which was published in 1939, is generally considered his third major accomplishment in economics. The Hicksian price and utility models he introduced in the book 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.
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.
What Is John R. Hicks Known for?
John R. Hicks is best known for significant work in the field of economics and is considered one of the most influential economists of the 20th century. His major accomplishments include his contributions to labor economics, utility and price theory, and macroeconomics. He also made great strides in his theories about welfare economics. Hicks was awarded the Nobel Prize with Kenneth Arrow for their work on general equilibrium theory and welfare theory.
Why Did John R. Hicks Win the Nobel Prize?
John Hicks won the Nobel Prize in Economics in 1972 with Kenneth J. Arrow. The two economists were awarded the prize for their work on general equilibrium analysis and welfare economics.
What Was John R. Hicks' IS-LM Model?
Hicks' IS-LM Model is designed to show the relationship between the market for economic goods and loanable funds, which is also known as the money market. The former is called IS (or investment savings) while the latter is known as LM. The model is depicted on a graph where the IS and LM intersect at the point where between the short-run equilibrium and the interest rates and output. It is often used to highlight how market preference changes affect the balance of interest rates and GDP.
The Bottom Line
John R. Hicks is often considered one of the most influential economists of the 20th century. He is credited with making significant contributions to several areas of the field, including labor economics and welfare economics. But it was his work with Kenneth Arrow involving general equilibrium theory and welfare theory that won the two men the Nobel Prize in 1972.