Introduction

Because we call it economics, with an "ics" ending like physics, that might suggest that economics is "scientific" as physics is scientific. But sometimes we have more in common with geography.

For example, we can say that a law of physics, such as the law of universal gravitation, is either true or false. It makes perfectly good sense to say that the law of gravitation is true. But, in geography, would it make sense to say that a map of the state of Pennsylvania is true or false? Of course, a map has to have a lot of truth in it. A map that would show Philadelphia in the west and Pittsburgh in the east would not represent Pennsylvania as it is, and at best could cause confusion and make the map useless. But, on the other hand, no map is perfectly accurate. Most road and street maps show the roads and streets much wider than they are in proportion to the other objects on the map -- we couldn't see the roads and streets if they were shown in proportion, and then the map would be useless. On the other hand, every map leaves out some detail. If the map is on a fairly large scale, it will leave out a lot of detail. If you want to go find covered bridges (I do that, sometimes, on pretty winter days) you will need a local or county map. Covered bridges are mostly on minor rural roads, and you won't find those roads on a map of the whole state of Pennsylvania. On the other hand, if you want to drive from Philadelphia to Pittsburgh, you need a map of the whole state -- you wouldn't find the detailed county maps very useful for that purpose. And contour maps show little lines where the elevation is 100 or 200 meters above sea level. There aren't really any lines like that on the ground. These maps have a lot of falsehood in them. But maps are designed to be useful, not to be true. To be useful, they have to have a mixture of truth and falsehood -- and just what needs to be true, and what needs to be false, depends on what you want to use the map for.

Many (not all) economic models are like that, especially in Macroeconomics. They are designed to be useful to help you find your way around the economic system, and to help you anticipate where it is going and where you are going with it. To do that, they need a lot of truth, but also a bit of carefully chosen falsehood. Like a map on a large scale, they leave out a lot of detail -- and macroeconomics is on the largest scale, so it leaves out the most detail.

The chapters that follow are designed to build up a workable map of the macroeconomy, and to put it to work. (The last two chapters will focus on some controversies about the details of the map.) In doing this, we will need to draw on a number of different traditions in economic thought -- some of them quite opposed to one another. That should not be much of a surprise, given our understanding that economics is the product of a reasonable dialog -- in which many issues have two or more opposing sides. But, generally, all sides have contributed details that will be useful in our map (except possibly Marxism). The next few chapters will take up some basic topics one at a time -- methods of measuring national production, its growth over time, problems such as inflation and unemployment, the nature of monetary systems and of international trade. While chapters 16-19 will all draw on concepts from this chapter, the chapters are more nearly independent than is usual in economics. Starting with Chapter 25, however, we will try to build up a "model" of the macroeconomy. In chapters 26-31, we will be drawing mostly on elements from "Keynesian" economics, beginning from a far-too-simple "map" and adding detail to it. However, even the most complex "Keynesian" model will not quite do the job, and in Chapter 32 we add in some details that have been contributed by "anti-Keynesians." Both Keynesian and anti-Keynesian elements work together and are parts of our "map," which we then try out in Chapter 33. Of course, Keynesians and anti-Keynesians still disagree about many of the details that would be needed in a still more detailed "map," and those controversies are the focus of Chapters 35 and 36.

Adam Smith wrote about "The Nature and Causes of the Wealth of Nations," but left the problem of measuring "the wealth of a nation" largely unsolved.

Smith did help us to understand the nature (as well as the causes) of the wealth of nations. He taught that it was national production -- not stockpiles of gold and silver -- that were the real basis of the wealth of a nation, and that increases in production per worker would lead to a higher standard of living. But, although he worked on it, he did not tell us how to measure the production of a nation, and the classical political economists of the nineteenth century didn't even try to push forward on that. Perhaps they didn't consider it important: if we could understand the causes of increased production, and guide policy in ways that would favor rather than handicapping increased production, how important could it be to find out just how big or how small the national production is?

However, in the Twentieth Century, as economists began to use statistical methods extensively, measurement became more important. We also will need those measurements in the next few chapters. Accordingly, we will skip over a century of the economists' conversation to the twentieth century, to explore the ways that modern economists approach the measurement of national production.