Oskar Lange and the Walrasian interpretation of IS-LM
Résumé
A few years after the publication of The General Theory, a number of economists began to present John Maynard Keynes’s model, identified with IS‐LM, as a particular case of the Walrasian model. This view of IS‐LM has often been rationalized by a basic syllogism: IS‐LM was invented by John Hicks, Hicks was a Walrasian, hence IS‐LM was Walrasian. But as some historians of macroeconomics have shown, this syllogism is false. Considering this confusion as an established fact, this article studies how and why IS‐LM came to be considered as Walrasian. It shows that the standard view took its roots in “The Rate of Interest and the Optimum Propensity to Consume,” a paper published by Oskar Lange in 1938, and resulted from a need to clarify the foundations of Keynes’s theory. [ABSTRACT FROM PUBLISHER]