Oskar Lange or how IS-LM came to be interpreted as a Walrasian model

Goulven Rubin

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Economic Theory and Policy Economic Theory and Institutions Historical Economic and Legal Thought

Abstract

A few years after the publication of The General Theory, a number of economists began to present Keynes's model, identified with IS-LM, as a particular case of the Walrasian model. This view of IS-LM has often been rationalized by a basic syllogism: IS-LM was invented by John Hicks, Hicks was a Walrasian, hence IS-LM was Walrasian. But as some historians of macroeconomics have shown, this syllogism is false. Considering this confusion as an established fact, this article studies how and why IS-LM came to be considered as Walrasian. It shows that the standard view took its roots in "The Rate of Interest and the Optimum Propensity to Consume", a paper published by Oskar Lange in 1938, and resulted from a need to clarify the foundations of Keynes's theory.

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References

1936The General Theory of Employment, Interest and Money.1937The General Theory of Employment 1948Foundations of Economic Analysis.1937Mr. Keynes and the "Classics"; A Suggested Interpretation 1971A General Disequilibrium Model of Income and Employment 1967Money, Interest and Prices 1944Liquidity Preference and the Theory of Interest and Money 1939Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory.

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2017On J. M. Keynes's Initial IS-LM Approach in 1933 and 1934: Its Connection to Liquidity Preference, the Weight of Evidence, the A Treatise on Probability, and Keynes's Aggregate Supply Curve from Chapter 20 of the General Theory 2017On J M Keynes's Correspondence about His General Theory IS-LM Model with Harrod and Hicks on Their Interpretations of His IS-LM Model: Keynes Had No Major Objections Because IS-LM Was Created, Developed and Applied by Keynes in the General Theory in Chapter 15 2017Hicks's IS LM Interpretation of the IS-LM Model in J M Keynes's Chapter 15 of the General Theory: Partly Wrong in 1937 and Partly Wrong in 1981 2017The ISSLM Debacle: An Analysis of Nearly Nine Decades of Errors Committed by Economists Attempting to Deal with J M Keynes's (Not Hicks's) IS-LM Analysis in the General Theory

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