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Robert Eisner, a leading American macroeconomist and theorist of the investment function, graduated in history from College of the City of New York in 1940, took an MA in sociology from Columbia University in 1942 and, following service in the army and the Office of Price Administration, a Ph.D. in economics under Fritz Machlup at Johns Hopkins University in 1951. He joined the faculty of Northwestern University in 1952, rising to hold the William R. Kenan Professorship of Economics from 1974 until his retirement in 1994. He served as President of the American Economic Association in 1988.

Eisner was an architect of the Keynesian ascendancy in post-war America. Much of his work was devoted to technical developments in that tradition; his singular distinction lay in taking the accounting foundations of Keynesian macroeconomics seriously and in developing their implications with utmost rigour. This thread runs through his writing from his earliest papers on the ‘Invariant Multiplier’, the permanent income hypothesis, liquidity preference and the liquidity trap. It reaches its apogee in his work on a Total Income System of Accounts (TISA). It suffuses his later, policy-oriented writings on the meaning and implications of deficits in the budget, current account, and Social Security system.

No shrinking violet, Eisner liked to call his shots. Thus, H. S.Houthaker ‘has not performed [a] test correctly’; ‘Bronfenbrenner and Mayer… confound… issues of elasticity with those of slope’; ‘Re-estimation with Pifer’s data and application of appropriate statistical tests contradict Pifer’s conclusions’ (1998a, pp. 8, 27, 48). The tone is ever tactful, the intent always the pursuit of truth, the subtext a certain delight in finding the exact, fatal weakness of an opposing view. Late in his life, this author heard Eisner speak to a room of senior officials in China on the error and futility of the one-child policy, a delicate issue which he raised in the same spirit and with deeply impressive effect.

Underpinning his technical precision lay an unflagging commitment to larger social goals, especially full employment, peace, and justice. Eisner actively advocated all three throughout his career, but especially in the later years when he appeared frequently on the opinion pages of the Wall Street Journal, as a leading director of Economists Allied for Arms Reduction, and in causes devoted to the advancement of women in the economics profession.

For instance, in a 1952 paper in the American Economic Review (1998a, 106–17) Eisner analysed the relationship of replacement costs to depreciation allowances in a growing economy. In doing so he called attention to the fact that growth in the latter usually exceeded that in the former, resulting in reported profits that were understated for purposes of both taxation and collective bargaining. Pointedly, he suggested the work ought to interest both revenue officers and trade unionists.

Yet Eisner’s views were often unfashionable and politically inconvenient. In important papers in the 1980s, at a time when Democrats had taken the veil of fiscal virtue, he undertook with Paul Pieper to show that (among numerous other difficulties with budget accounting) inflation had rendered the deficit meaningless, introducing vast inconsistencies between the nominal budget deficit and the change in the real public debt. Thus, the Reagan deficits were far smaller than normally supposed, while those of Carter were surpluses in real terms – likely to produce fiscal drag and so to bear partial responsibility for the stagnation of those years. Correctly accounting for inflation, Eisner argued, might have forestalled the new classical critique that led many in those years to abandon Keynesian principles.

A closely related cause was the misunderstanding of ‘national saving’ and the fallacious popular argument that to reduce deficits would lead to increased capital formation. In 1995, Eisner argued that to take the accounting relation between public and private saving

as evidence that reducing the federal deficit must raise national saving should be recognized, on even the slightest reflection, as patently absurd. It is startlingly akin to the assumption, more than half a century ago, that saving and investment would be increased if we all undertook to save more by consuming less. Perhaps! But that is exactly the proposition to be proved, or supported by empirical evidence, not assumed. (1998a, p. 322)

Second only to correct reasoning, evidence mattered. In the 1990s Eisner took up arms against the ‘governing myth’ of economic policy, the natural rate of unemployment introduced by Friedman and Phelps in 1968. From this strangely selfdamaging justification for perpetually high unemployment, Eisner hoped for a ‘NAIRU escape’. His method was largely econometric, and in what may have been his final paper, published in 1998 (1998a, pp. 454–87), he argued that a separate analysis of low-unemployment cases showed no relationship between full employment and rising inflation. This position was to be vindicated dramatically in the two years following his death.

Eisner embraced capital budgeting, so that the liabilities acquired by the government might be properly offset against corresponding assets. This position helped underpin a strong advocacy of liberal expenditure on infrastructure, education, and research and development. It also provides one bridge between the Keynesian Eisner and his counterpart, the theorist of investment, public finance, and peace economics and stalwart defender of Social Security, all of which he was.

Eisner’s investigations of investment involved pioneering use of corporate records. They permitted cross-section analysis of firm decisions, showing that the concepts of macro models, such as the accelerator, operated differently on firms from different industries or with differing recent growth histories. In numerous studies, Eisner criticized neoclassical investment theories. Rejecting the notions of a desired capital stock and unit relative price elasticity, he adhered to a Keynesian relation of investment to expected profitability and of expected profits to the rate of growth. An important theme in this work concerns the appropriate level of aggregation at which to take measurements. Eisner found that firms appropriately assess the growth of their own industry to be the most relevant to profit prospects, not the inherently variable growth of individual firms or the potentially irrelevant growth of generalized aggregate demand.

Eisner’s Total Income System of Accounts marked the peak of his campaign to rationalize economic measurement and theory. The importance of changing household relations appears vividly in his initial motivation for this work: ‘What happens to income, output, and productivity when clotheswashing moves from the washtub and the professional laundry to the laundromat and to the automatic washer and dryer…?’ (1998b, p. 188). Particularly noteworthy is capital accumulation by households in a country where transportation is provided mainly and increasingly by private car. The challenge of TISA remains to be taken up by most economists and national income statisticians.

Finally, midway through the Vietnam War Eisner deflated the view that President Johnson might have forestalled inflation by raising taxes; the only sure way to that end, he showed, would have been to avoid the war. This insight led to papers on the ‘staggering cost’ of the Vietnam war, much in the spirit of total accounts, and on post-cold war disarmament. Equally, to the end of his life Robert Eisner defended Social Security from all those who would cut it. Spurious and persistent allegations of financial ‘crisis’ notwithstanding, he believed that a rich and civilized society can, and should, provide decent incomes and care for its old.

See Also

Selected Works

  • 1986. How real is the federal deficit? New York: Free Press.

  • 1994. The misunderstood economy: What counts and how to count it. Cambridge, MA: Harvard Business School Press.

  • 1997. The great deficit scares: The federal budget, trade, and social security. New York: The Century Foundation.

  • 1998a. The Keynesian revolution, then and now: The selected essays of Robert Eisner, vol. 1. Cheltenham: Edward Elgar.

  • 1998b. Investment, national income and economic policy: The selected essays of Robert Eisner, vol. 2. Cheltenham: Edward Elgar.