Completing D. Patinkin's Partially Correct, Incomplete Assessment of J M Keynes's Role as the Creator in the Development of the IS-LM Model
19 Pages Posted: 14 Jun 2017 Last revised: 28 Jun 2017
Date Written: June 13, 2017
Patinkin came very, very close in 1987 to discovering for himself that Keynes,not Hicks, was the creator and developer of IS-LM. Unfortunately, he stopped his analysis right at the point where he could have established Keynes’s priority over Hicks.
On pp.180-181 in chapter 14 of the GT,Keynes dealt with the classical and neoclassical theory of the rate of interest. Keynes provided the reader with an explanation as to why the interest rate is not explained by the forces of thrift and productivity alone. He stated that in order to have a determinant theory of the rate of interest, the state of liquidity preference, the amount of money, and their relationships to the rate of interest were required. Keynes provided that answer in chapter 15 on pp. 199-202.He also showed how his analysis could explain the special classical case of full employment in section IV of that chapter.
Patinkin is correct that Keynes did not provide a geometrical exposition of IS and LM in the GT. What Keynes provided was a mathematical and verbal exposition of IS and LM in the GT.Keynes had no objections to IS LM, in general ,outside of the fact that IS LM needed (1) a microfoundation in the theory of the firm and (2) needed to be able to deal with expectations. Keynes meet both of these shortcomings in chapters 20 and 21 of the GT.
Keywords: Harrod,Hicks,IS-LM ,Liquidity preference,Patinkin,chapter 15,pp.180-182 of GT
JEL Classification: B10,B12,B14,B16,B20,B22
Suggested Citation: Suggested Citation