Birth and Rise of Macroeconomics

 
Economics as a term, is as old as humanity.  Despite the fact that Macroeconomics became important just after The Great Depression (1929), it is obvious that economists were tackling macroeconomic issues like inflation, unemployment and growth etc. even before 1929. For example, it is well known that Adam Smith who is one of the most famous classical economists, analysed macroeconomic variables and for example said that economy is always in full employment equilibrium in his most known book "Wealth of Nations" in 1776.

In the classical economic theory, it is not crucial and necessary to emphasize and analyse macroeconomic variables as an issue very much due to fact that whenever a disequilibrium emerges, “an invisible hand” brings it to the equilibrium level again owing to flexible prices, wages and interest rate. (Price Mechanism) According to classical economists, “every supply creates its own demand” (Say’s Law) and economy is always in full employment equilibrium, as a result of this there is not involuntary unemployment in economy. Moreover, the money is just a veil for they which creates only inflation if it is not controlled. They believe that government should not intervene free market because it will be just harmful for the economy. The event or disaster which changed almost every thing about economics was The Great Depression. It could be easily said that it was the birth of Macroeconomics as a science and J. M. Keynes as a popular economist. According to Mankiw  “The Great Depression had a profound impact on those who lived through it. In 1933, the U.S. unemployment rate reached 25 percent, and real GDP was 31 percent below its 1929 level. “
 
After 1929 and during the years of the Great Depression, it was realized that there was no invisible hand which brought the market to the equilibrium again and provided full employment output level. Keynesian revolution was the most important turning point in that period of time for Macroeconomics. On the contrary to classical approach, Keynes said that in order to overcome the depression, demand should be supported and fiscal policy has to be used. Because, he believed that prices and wages are not flexible and therefore there is no invisible hand in the economy which brings it to equilibrium level again. Moreover, on the contrary to classical theory, he said that every demand creates its own supply and full employment is an exceptional situation not a general equilibrium.

He asserted the idea that classical point of view about economics was an exceptional situation but his own views were general theory of economics. Therefore, Keynesian approach was accepted quite successful to overcome the great depression and almost all of countries applied his views and boomed success of their economies until 1970’s.
 
In the early 1970s, The Oil Crisis and its aftermath events emerged some monetary and neoclassical counter revolution against Keynesian theory.  Because Keynesian economists could not explain solution of stagflation issue which caused high inflation and high unemployment occurred at the same time. Then, as a natural result of this especially Phillips Curve was criticised because it was not accurate according to the New Classical and Monetarist economists. After 1980s, "expectations" and new approaches based on old classical theories in the economics became more popular and New-classical and Monetarist economists emerged based on traditional classical theory in fact. Even there are Real Business Cycle Theory, New Keynesians and New Classicals (rational expectations) in last the decades of economic evolution, it could be said that these all form of economic theories are arisen from new interpretations of two main economic theories: Classical and Keynesian approaches.
 
In conclusion, it is obvious that generally, today there is not a one-side macroeconomic system in the world economics like strict capitalism or socialism. It could be said that nowadays, wide-spread macroeconomic approach in the world is a mixed version of New-Classic micro approach and New Keynesian macroeconomic theory.