Macroeconomic Modelling and Policy

Stone’s interest in macroeconomic modelling and policy flowed naturally from his interest in measuring national income and estimating the multiplier. His aim was to understand the workings of the economic system, integrating observations of economic behaviour and economic theory. His views about the use of the national accounts in formulating economic policy are made clear in a paper published in 1951 [45]. Here, he put forward three ‘social ideals’ that should be pursued in national economic planning, avoiding both extremes of the free market ‘laissez-faire’ ideology and totalitarian central planning. First and foremost was economic stabilisation, meaning the avoidance of unemployment and inflation. The second ideal was the equalisation of the distribution of incomes. Third, there is the intervention in the market economy to plan for social objectives. In his work, Stone repeatedly emphasised the need for policy makers to supplement market mechanisms by allowing for values not priced on any market, such as uncongested streets, peace and quiet, and an unpolluted environment. His fundamental objection to laissez-faire is that it works with limited values, those of the market place, and limited information, that of current prices and a small number of forward markets.