Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

Citation data:

SSRN Electronic Journal

Publication Year:
2014
Usage 1538
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SSRN
SSRN Id:
2392856
DOI:
10.2139/ssrn.2392856
Author(s):
Egmont Kakarot-Handtke
Publisher(s):
Elsevier BV
Tags:
new framework of concepts; structure-centric; axiom set; Hicks; Allais
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article description
Krugman has recently revitalized IS-LM with a number of succinct analytical pieces on his blog. The reverberations were remarkable. Economists, however, are known often not grasp the full content of their own and, a fortiori, of others’ models. This happened to Keynes in the days of high theory and to Krugman in these days. Keynes applied a defect formalism, which is here replaced by objective-structural axioms. This yields the correct relationship between retained profit, saving, and investment which in turn makes it clear after the event that the IS-part of the IS-LM construct had been logically defective ab initio.