It’s been over three years since I posted the fourth of my four previous installments in this series about Earl Thompson’s unpublished paper “A Reformulation of Macroeconomic Theory,” Thompson’s strictly neoclassical alternative to the standard Keynesian IS-LM model. Given the long hiatus, a short recapitulation seems in order.
The first installment was an introduction summarizing Thompson’s two main criticisms of the Keynesian model: 1) the disconnect between the standard neoclassical marginal productivity theory of production and factor pricing and the Keynesian assertion that labor receives a wage equal to its marginal product, thereby implying the existence of a second scarce factor of production (capital), but with the market for capital services replaced in the IS-LM model by the Keynesian expenditure functions, creating a potential inconsistency between the IS-LM model and a deep property of neoclassical theory; 2) the market for capital services having been excluded from the IS-LM model, the…
View original post 1,478 more words
Utopia, you are standing in it! 
Recent Comments