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What Was Lost with IS-LM

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  • Roger E. Backhouse
  • David Laidler

Abstract

The dominance of the IS-LM model in macroeconomics after 1937 led to the neglect and sometimes the outright loss of a number of important issues that had earlier been prominent in the literature. All these losses were related to the fact that economic life takes place over time, from which the IS-LM model's formal comparative static nature abstracted. Ideas about explicit dynamic modelling, inter-temporal choice and expectations, the analysis of policy issues in terms of regimes, and coordination failures in the inter-temporal allocation of resources, are discussed from this standpoint. The extent and importance of the losses are discussed, as are questions about how the intellectual dominance of IS-LM affected the forms in which some of these ideas have subsequently re-emerged.
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  • Roger E. Backhouse & David Laidler, 2004. "What Was Lost with IS-LM," History of Political Economy, Duke University Press, vol. 36(5), pages 25-56, Supplemen.
    • Handle: RePEc:hop:hopeec:v:36:y:2004:i:5:p:25-56
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    References listed on IDEAS

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    1. Laidler,David, 1999. "Fabricating the Keynesian Revolution," Cambridge Books, Cambridge University Press, number 9780521641739, September.
    2. Leeson,Robert (ed.), 2000. "A. W. H. Phillips: Collected Works in Contemporary Perspective," Cambridge Books, Cambridge University Press, number 9780521571357, September.
    3. Edward Nelson, 2004. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," History of Political Economy, Duke University Press, vol. 36(5), pages 271-304, Supplemen.
    4. Michael D. Bordo & Anna J. Schwartz, 2004. "IS-LM and Monetarism," History of Political Economy, Duke University Press, vol. 36(5), pages 217-239, Supplemen.
    5. Fisher, Irving, 1907. "The Rate of Interest," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number fisher1907.
    6. Robert W. Dimand, 2004. "James Tobin and the Transformation of the IS-LM Model," History of Political Economy, Duke University Press, vol. 36(5), pages 165-189, Supplemen.
    7. Backhouse, Roger E, 1998. "If Mathematics Is Informal, Then Perhaps We Should Accept That Economics Must Be Informal Too," Economic Journal, Royal Economic Society, vol. 108(451), pages 1848-1858, November.
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    Cited by:

    1. Roger E. Backhouse, 2013. "Responding to economic crisis: macroeconomic revolutions in the 1930s and 1970s," Chapters, in: Mats Benner (ed.), Before and Beyond the Global Economic Crisis, chapter 2, pages 38-54, Edward Elgar Publishing.
    2. D. Wade Hands, 2012. "The Rise and Fall of Walrasian Microeconomics: The Keynesian Effect," Chapters, in: Microfoundations Reconsidered, chapter 3, Edward Elgar Publishing.
    3. Edward W. Fuller, 2020. "Alchian on Keynes," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 33(4), pages 503-511, December.
    4. Esther-Mirjam Sent & Roger Backhouse & AW Bob Coats & John Davis & Harald Hagemann, 2005. "Perspectives on Michael A. Bernstein's A Perilous Progress: Economists and Public Purpose in Twentieth-Century America," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 12(1), pages 127-146.
    5. Stavros A. Drakopoulos, 2021. "The marginalization of absolute and relative income hypotheses of consumption and the role of fiscal policy," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 28(6), pages 965-984, November.
    6. Roger E. Backhouse & Bradley W. Bateman, 2012. "The Right Kind of an Economist: Friedman’s View of Keynes," Chapters, in: Thomas Cate (ed.), Keynes’s General Theory, chapter 9, Edward Elgar Publishing.
    7. Schiffman, Daniel A., 2004. "Mainstream economics, heterodoxy and academic exclusion: a review essay," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1079-1095, November.
    8. Uskali Mäki & Caterina Marchionni, 2011. "Economics as Usual: Geographical Economics Shaped by Disciplinary Conventions," Chapters, in: John B. Davis & D. Wade Hands (ed.), The Elgar Companion to Recent Economic Methodology, chapter 9, Edward Elgar Publishing.

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