Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
Krugman has recently revitalized IS-LM with a number of succinct analytical pieces on his blog. The reverberations were remarkable. Economists, however, are known often not grasp the full content of their own and, a fortiori, of others’ models. This happened to Keynes in the days of high theory and to Krugman in these days. Keynes applied a defect formalism, which is here replaced by objective-structural axioms. This yields the correct relationship between retained profit, saving, and investment which in turn makes it clear after the event that the IS-part of the IS-LM construct never could bear any substantive theoretical load.
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- Tomasson, Gunnar & Bezemer, Dirk J, 2010. "What is the Source of Profit and Interest? A Classical Conundrum Reconsidered," MPRA Paper 20320, University Library of Munich, Germany.
- Ingo Barens, 1997. "What Went Wrong with IS-LM/AS-AD Analysis--And Why," Eastern Economic Journal, Eastern Economic Association, vol. 23(1), pages 89-99, Winter.
- repec:cup:cbooks:9780521641739 is not listed on IDEAS
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MIT Press, vol. 115(4), pages 1375-1409, November.
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"Reconstructing the Quantity Theory (II),"
32542, University Library of Munich, Germany.
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"Solving the paradox of monetary profits,"
Economics - The Open-Access, Open-Assessment E-Journal,
Kiel Institute for the World Economy, vol. 4, pages 1-32.
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