OSKAR LANGE AND THE WALRASIAN INTERPRETATION OF IS-LM

Goulven Rubin

Journal of the History of Economic Thought, 2016, vol. 38, issue 3, 285-309

Abstract: A few years after the publication of The General Theory, a number of economists began to present John Maynard 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.

Date: 2016
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