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

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  • Goulven Rubin

    (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - Université de Lille, Sciences et Technologies - Université de Lille, Sciences Humaines et Sociales - PRES Université Lille Nord de France - Université de Lille, Droit et Santé)

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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  • Goulven Rubin, 2014. "Oskar Lange or how IS-LM came to be interpreted as a Walrasian model," Working Papers halshs-01018658, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01018658
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01018658v2
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    Keywords

    IS-LM; Oskar Lange; History of macroeconomics; John R. Hicks; Neoclassical Synthesis;
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