Keynes and the Birth of Modern Macroeconomics

David Laidler

No 20052, University of Western Ontario, Economic Policy Research Institute Working Papers from University of Western Ontario, Economic Policy Research Institute

Abstract: The usual description of Keynes's macroeconomics as relying on the postulate of money wage stickiness to explain unemployment, and advocating fiscal policy as its cure, is largely mythical. Rather he was concerned with exploring the theoretical idea that an economy co- ordinated by monetary exchange is prone to market failures that create unemployment. The origins of this idea in what Keynes called "classical" economics can be traced back at least as far as John Stuart Mill, though he himself preferred to claim the much less orthodox Malthus as his antecedent. Be that as it may, Keynes's own emphasis on income and employment variations as both the result of and the "solution" to specifically inter-temporal failures was highly original. The idea that monetary exchange might involve co-ordinatioin failures of any sort has now largely disappeared from macroeconomics, under the influence of New-classical economics.

Keywords: macroeconomics; Keynesian economics; markets; money; interest rates; unemployment; multiplier (search for similar items in EconPapers)
JEL-codes: B12 B22 B31 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-his, nep-hpe and nep-pke
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