On Hicks's Own, Explicit Acknowledgment, Made in His 1937 Econometrica Article, That It Was J M Keynes Who Had First Presented an IS-LM Model in the General Theory: Hick's Model Was Only a Slight Improvement
55 Pages Posted: 2 May 2018
Date Written: April 15, 2018
Hicks was quite clear in his 1937 Econometrica paper that his model of IS-LM was based directly on Keynes’s IS-LM model of the General Theory with minor embellishments. In his closing paragraph, Hicks is very clear that it is Keynes, not Hicks, who proposed the first IS-LM model:
“These, then, are a few of the things we can get out of our skeleton apparatus. But even if it may claim to be a slight extension of Mr. Keynes’ similar skeleton...” (Hicks, 1937, p. 158).
Hicks had, of course, realized that Keynes had already considered, and rejected, his “really General” Theory because it removed both expectations and uncertainty from the original model. Keynes was quite explicit in his reply to Hicks:
“At One Time I Tried the Equations, as You Have Done, with I in All of Them”.
In fact, Hicks’s “equations”, which are actually not equations at all ,but mere functional relationships expressed between dependent and independent variables of the form y=f(x) and z=h(q), are identical to those presented by Keynes in chapter 21 of the General Theory on pages 298-299.The only actual equations appear in the General Theory on pages 115, 199, and 208-209.
It is shown that Hicks’s figures one and two on page 153 are simply graphical translations of Keynes’s specific descriptions contained on pages 200-202, 207 of the General Theory and Keynes’s analysis of the missing LM equation from the neoclassical theory contained on pages 179-182 of the General Theory.
Hicks’s discussion of an horizontal IS curve, in relation to Keynes’s discussion of Wicksell on page 242 of the General Theory, is the only “slight extension” offered by Hicks.
It is demonstrated that the economics profession has been completely bamboozled for 82 years by the canards, fictions, fables, myths, tall tales, and stories told about Keynes by a mathematically innumerate, illiterate, inept, and confused economist, named Joan Robinson, based on her claims that in the General Theory, Keynes only used the Marshallian, partial equilibrium modeling approach. Keynes supposedly refused to use a system of mathematical, simultaneous equations because, as a fanatic disciple of Marshall, he would always burn his mathematical analysis and replace it with a strictly literary summary after checking to make sure that the mathematical analysis supported the literary analysis. Robinson had no idea about how to specify or analyze a system of simultaneous, mathematical equations because she had never taken an introduction to pre-algebra course.
The entire history of macroeconomics needs to be completely rewritten by economists. They have integrated the faulty claims introduced by Joan Robinson, a self admitted mathematical illiterate, into their histories. In retrospect, one can ask the following question:
How could a mathematical illiterate, like Joan Robinson, have been taken seriously as the major source upon which to base the foundation for an assessment of Keynes’s GT? It is simply a catastrophic, egregious error that has ramifications for questions about the scientific respectability of the economics profession.
Hicks admitted in 1937 that he had made only a slight improvement over Keynes ‘s model. Keynes established that absolute liquidity preference, which was represented by the “flattened” horizontal portion of his LP equation in (r,Y) space on page 207 of the GT, which was called a Liquidity “Trap” by others, would occur once the long run rate of interest fell below a rate of 2% or 2.5%. This is identical to a short run rate approaching or equaling 0%, once the various premiums are subtracted from the long run rate or added to the short run rate. Krugman has constantly maintained this position since the early 1990’s in the face of spurious attacks based on the baseless assertion that there was no IS-LM model in the GT. Hicks’s own admission in 1937, never repeated or clarified afterwards by Hicks, that his model represented only a slight improvement over Keynes’s, should end any support for the baseless claims of Joan Robinson.
The most severe errors currently embedded in histories of macro economics concerning the impact of the GT can all be traced directly to Joan Robinson. The reader is asked to consult the many papers I have available on SSRN chronicling her many, myriad errors, errors which are embedded in heterodox and orthodox assessments of Keynes’s GT.
Keywords: IS-LM, IS-LP(LM), Hicks, J. Robinson, R. Kahn, Keynes, mathematical illiteracy, A. Robinson, Y=C I, D-Z model
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation