The Ascent of Keynesianism: The IS-LM Hegemony

The conventional historical account described macroeconomics as a sub-discipline born after the Great Depression, with the General Theory as its formative text and inspiring source; a sub-discipline which managed to take hold of the minds of the majority of economists during the 1950s. The explanations for the acceptance of the new paradigm and its rapid rise highlighted the persuasive power of the new ideas as they were presented to the orthodoxy in a simple, elegant, tractable model which purportedly captured the main ideas in the General Theory: the IS-LM model. Some of the debates concerning the Keynesian revolution focused on the analytical differences between the General Theory and the working model used by Keynesianism, the IS-LM model. In his seminal 1968 book, Leijonhufvud persuasively outlined the important analytical differences between the 1936 text, what he referred to as “the economics of Keynes,” and “Keynesian economics.” The process, which been described as the Keynesian Revolution, encountered resistance; indeed, some scholars doubted its mere existence. That latter view was articulated by David Laidler, one of the better-known scholars of the history of macroeconomics and monetary theory, in his 1999 book Fabricating the Keynesian Revolution.