| Sir John Richard Hicks |
 Sir John Richard Hicks
(April 8 1904 - May 20 1989)
was one of the most important and influential economists of the twentieth century. Hicks was a professor at
The University of Oxford, situated in the city of Oxford, England,the oldest university in the
English-speaking world. He was awarded
Nobel
Prize in 1972 for economics.
The Nobel Prizes are awarded annually to people who have done outstanding research, invented
groundbreaking techniques or equipment, or made outstanding
contributions to society. It is generally regarded as the supreme
commendation in the world today. Hicks developed the famous "compensation"
criteria called Kaldor-Hicks efficiency
(named for Nicholas Kaldor and John Hicks) is a type of economic
efficiency that occurs only if the economic value of social resources is
maximized. A Kaldor-Hicks improvement is any alternative that increases
the economic value of social resources. The idea is related to Pareto
efficiency. Under Pareto efficiency, an
outcome is more efficient if at least one person is made better off and
nobody is made worse off. Under Kaldor-Hicks efficiency, a more
efficient outcome can leave some people worse off. Here, an outcome is
more efficient if those that are made better off could in theory
compensate those that are made worse off and lead to a Pareto optimal
outcome.
Sir John Richard Hicks was born in Royal Leamington Spa.
Royal Leamington Spa, commonly shortened to Leamington Spa
or Leamington (pronounced 'Lemington') is a spa town in central
Warwickshire, England, United Kingdom. In 2001 it had a population of
42,304. It is named after the River Leam which flows through the town.
Hickss most influential contribution has come to be called the
Hicks-Hansen IS-LM Model which, based on the theories of John
Maynard Keynes. John Maynard Keynes (June 5, 1883 in Cambridge - April 21,
1946 in Sussex) was an English economist, whose radical ideas had a
major impact on modern economic and political thought. He is
particularly remembered for advocating interventionist government policy,
by which the government would use fiscal and monetary measures to aim to
mitigate the adverse effects of economic recessions and booms. His ideas
have been further developed by the school of Keynesian economics,
an economic theory based on the his ideas, as put forward in his
book The General Theory of Employment, Interest and Money,
published in 1936. Although Sir John Richard Hicks trained at Oxford, his "real"
education began when he was appointed to the London
School of Economics in the late 1920s, where under the encouragement of
Lionel Robbins and others, he used his magnificent proficiency in many European tongues to
absorb the economics treatises of Continental Europe. Thus seeped in the
Walrasian, Austrian, and Swedish tradition, John Hicks began to break the Marshallian
hold on Anglo-Saxon economics in the 1930s -- what we have called the
great Paretian
tide that consolidated the Marginalist
Revolution begun over fifty years beforehand. John Hicks's classic Value and Capital (1939) was the spearhead of
that movement. The precepts of that book had already been announced
elsewhere. On the microeconomic side, his 1930 article and 1932 book, Theory
of Wages was an attempt at a careful and complete restatement of the marginal
productivity theory (it was there that he introduced his famous "elasticity
of substitution"). In his famous 1934 paper with R.G.D.,
Hicks introduced the Slutsky
decomposition of demand into substitution and income effects, defined
substitution and complementarity clearly and reacquainted English-speaking
economists with the derivation of demand curves with the use of indifference
curves and budget constraints and the equation between marginal rates of
substition and relative prices.
"The pure theory of consumer’s demand, which occupied a good deal of
the attention of Marshall and his
John R. Hicks, Value and Capital Major Works of John Hicks
|
contemporaries, has received far less notice
in the present century. The third book of Marshall’s Principles still
remains the last word on the subject so far as books written in English are
concerned. Now Marshall’s theory of demand is no doubt admirable,* but it is
remarkable that it has remained so long upon such an unquestioned eminence.
This would be explicable if there were really no more to say on the subject,
and if every step in Marshall’s analysis were beyond dispute. But this is
clearly not the case; several writers have felt very uncomfortable about
Marshall’s treatment, and it is actually the first step, on which
everything else depends, which is the most dubious. Let us first remind ourselves of the bare outline of
Marshall’s main argument. A consumer with a given money income is confronted with a market
for consumption goods, on which the prices of those goods are already
determined; the question is, How will he divide his expenditure among the
different goods? It is supposed, for convenience, that the goods are available
in very small units.** It is assumed that the consumer derives from the goods
he purchases so much ‘utility’, the amount of utility being a function of
the quantities of goods acquired; and that he will spend his income in such a
way as to bring in the maximum possible amount of utility. But utility will be
maximized when the marginal unit of expenditure in each direction brings in
the same increment of utility. For, if this is so, a transference of
expenditure from one direction to another will involve a greater loss of
utility in the direction where expenditure is reduced than will be compensated
by the gain in utility in the direction where expenditure is increased (from
the principle of diminishing marginal utility). Total utility must therefore
be diminished, whatever transfer is made. Since, with small units, the
differences between the marginal utilities of two successive units of a
commodity may be neglected, we can express the conclusion in another way: the
marginal utilities of the various commodities bought must be proportional to
their prices."