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4 - The neoclassical synthesis revisited

Published online by Cambridge University Press:  04 April 2011

Colin Rogers
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Summary

INTRODUCTION

The previous chapters have examined the foundations of neoclassical monetary theory in terms of both its Wicksellian and neo-Walrasian versions. Despite the limitations exposed in this discussion it is these two versions of neoclassical theory which formed the basis of the neoclassical synthesis. The origins of this development can be traced to Hicks as references to both the Walrasian and the Wicksellian general equilibrium models can readily be detected in his early work. For example, in his famous paper entitled ‘Mr Keynes and the Classics’, Hicks (1937:158) remarks that:

When generalised in this way, Mr Keynes's theory begins to look very like Wicksell's; this is of course hardly surprising. There is indeed one special case where it fits Wicksell's construction absolutely. If there is ‘full employment’ … if IS is horizontal, we do have a perfectly Wicksellian construction; the investment rate becomes Wicksell's natural rate, for in this case it may be thought of as determined by real causes; if there is a perfectly elastic monetary system, and the money rate is fixed below the natural rate, there is a cumulative inflation; cumulative deflation if fixed above.

The reference to a Wicksellian interpretation of the IS–LM model is repeated by Hicks (1950:139n2, 1957:62) and, as we will see, the interpretation need not be as narrow as he appears to suggest.

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Money, Interest and Capital
A Study in the Foundations of Monetary Theory
 , pp. 73 - 109
Publisher: Cambridge University Press
Print publication year: 1989

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