Trevor Winchester Swan, Volume I

Frontmatter

Chapter 1. Introduction

Abstract

This is Volume I of a two-volume set. It describes Trevor Swan’s life, and his contributions, together with major articles and papers, 1937-1950. While Swan counted among his friends, Nobel Laureates, James Meade and Bob Solow, and his world’s first quarterly macroeconomic model of the Great Depression came before that of Nobel Laureate Lawrence Klein’s, he could easily have shared their awards. In his famous “Swan Diagram”, beloved of students of macroeconomics world-wide, his four zones of economic unhappiness describe the problems of internal and external balance. He then proposed how economies grew based on capital deepening and technical progress, giving rise to the Solow-Swan model of economic growth. He advised every Australian prime minister from Sir Robert Menzies to Bob Hawke and Paul Keating and had a profound effect on the Australian economy.

Peter L. Swan

Chapter 2. T. W. Swan: “Forced Savings”

Introduction

This is one of several surviving essays in Trevor Swan’s archives. It was written as a 19-year-old undergraduate studying part-time and working full-time in a bank and illustrates his early maturity, not only as an economist but also as an accomplished author who has read deeply into a vast literature and can quote and recall apt quotations at will. Also his ability to read literature written in both German and Latin.

Peter L. Swan

Chapter 3. T. W. Swan: “The Economic Interpretation of J. M. Keynes”

Abstract

Since the days of More, and probably from much earlier times, bitter controversy has raged around the relation between political or economic doctrine and the material interests of class advantage. The distinction between the seeker after truth and the propagandist is indeed a subtle one; who of us can say when the spirit of science beckons and when the “invisible hand” of environmental prejudice leads us on? The problem, however, has been considerably simplified by the attitude of many of the followers of Marx, who see in all theories which might possibly be turned to the disadvantage of the working class a taint of deep hypocrisy.

Peter L. Swan

Chapter 4. T. W. Swan: “Australian War Finance and Banking Policy”

Rarely does an economist write about funding a war, in this case during the first year of the Second World War, 1939-40. Trevor Swan begins with his attempt to set out what is recorded or can be surmised of the course of financial and monetary policy during 1939-40. He then follows this up with an analysis of banking policy over the same period and the Treasurer’s proposals for the following year. He addresses questions such as: Is it desired to “pay for the war” out of real consumption now, or to make posterity (including those of us who survive) pay in the form of a smaller volume of capital equipment.

Peter L. Swan

Chapter 5. T. W. Swan: “Some Notes on the Interest Controversy”

Writers agree that the two theories, “loanable funds” and “liquidity preference”, are merely different ways of saying the same thing - but they reach this conclusion by diverse processes in varying ways. Yet in the end the view of the controversy as a “sham dispute” will not be challenged, and it will be argued that revised terms of settlement, less ambiguous than the old, may be subscribed to by the adherents of “liquidity preference” and “loanable funds” alike. J. R. Hicks, in his chapter on the determination of the rate of interest refers to a “sham dispute within the ranks of those who adhere to the monetary approach. Is the rate of interest determined by the supply and demand for loanable funds (that is to say, by borrowing and lending); or is it determined by the supply and demand for money itself? This last view is put forward by Mr.Keynes in his General Theory.

Peter L. Swan

Chapter 6. T. W. Swan: Addendum to “Some Notes on the Interest Controversy”

Abstract

Since this article was set up, my attention has been drawn to an article bearing on the subject by W. Fellner and H. M. Somers in the Review of Economic Statistics Volume XXIII Number 1. The writers claim to prove that “loanable funds” and “liquidity preference” are formally identical but conclude (contrary to the conclusions reached above) that “loanable funds” is necessary to be preferred since the Keynesian theory involves the “unusual procedure of adding the same constant to both sides of an equation”.

Peter L. Swan

Chapter 7. T. W. Swan: “The Principle Of Effective Demand—A ‘Real Life’ Model”

Abstract

The volume of employment is given by the point of intersection between the Aggregate Demand Function and the Aggregate Supply Function … Given the propensity to consume and the rate of new investment, there will be one level of employment consistent with equilibrium; since any other level will lead to inequality between the aggregate demand price of output as a whole and its aggregate supply price—Full employ employment can only exist when, by accident or design, current investment provides an amount of demand just equal to the excess of the aggregate supply price of the output resulting from full employment over what the community will choose to spend on consumption when it is fully employed.

Peter L. Swan

Chapter 8. T. W. Swan: “The Role of Wages in the Australian Economy”

Abstract

An examination of the part played by wages in the price and output mechanism requires a clear distinction to be drawn between sections of the economy in which basically different relationships apply.

Peter L. Swan

Chapter 9. T. W. Swan: “Price Flexibility and Employment”

Abstract

“Traditional” economic theory is largely concerned with the definition of the set of relative prices which in given conditions of tastes, knowledge and resources, will “clear the market,” leaving neither excess demand nor excess supply—neither bottlenecks nor unemployment—anywhere in the economy. In the fish market or the auction room—wherever the market forces can be observed most clearly and freely at work—the free rise on fall of prices can be seen to bring demands and supplies into equilibrium. It seems, therefore, a short step to the proposition that a free and flexible pricing system will automatically tend to establish all prices in their equilibrium relationship.

Peter L. Swan

Chapter 10. T. W. Swan: “Progress Report on the Trade Cycle”

Abstract

“If the theory which is here offered stands up to theoretical criticism, the next stage will be the concern of statisticians, econometrists, and (most of all) economic historians, who will have to see whether it does prove possible to make sense of the facts in the light of these hypotheses”.

Peter L. Swan

Chapter 11. T. W. Swan: “The Theory of Suppressed Inflation”

Abstract

“When a further increase in the quantity of effective demand produces no further increase in output and entirely spends itself on an increase in the cost-unit fully proportionate to the increase in effective demand, we have reached a condition… of true inflation”. This is Keynes’ definition of the point at which “inflation” begins; it corresponds with his definition of the point of “full employment”.

Peter L. Swan

Chapter 12. T. W. Swan: “The Anatomy of Inflation”

Abstract

Demand Inflation: “Too much money chasing too few goods”. An increase in effective demand beyond the point of full employment (excess demand) causes prices to be bid up; the resulting profit opportunities cause wages also to be bid up by the competition of employers; this means (in money terms) still more demand; and so a cumulative inflation.

Peter L. Swan

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