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Keynes's Treatise : aggregate price theory for modern analysis?

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  • Max Gillman

Abstract

The paper explores the theory of the aggregate price, profit, and business fluctuations in Keyne's Treatise for its implications for modern macro-economic analysis. As in the Treatise, profits are first defined within a theory of the agregate price level, as aggregate investment minus saving. Deriving aggregate total revenue and aggregate total cost from this price theory, the paper shows how to construct a version of the Keynesian cross diagram. The cross construction suggests an important qualification for fiscal policy, that total cost does not shift. Then, using a neoclassical definition of profit and the total-cost / total-revenue approach, the paper derives aggregate supply, and then adds aggregate demand in an integrated framework. Comparative statics of the AS-AD analysis and the central role of profit in the Treatise suggest that a focus on profit might be useful in identifying exogenous technology shocks of real business cycle theory.

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  • Max Gillman, 2002. "Keynes's Treatise : aggregate price theory for modern analysis?," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 9(3), pages 430-451.
    • Handle: RePEc:taf:eujhet:v:9:y:2002:i:3:p:430-451
    DOI: 10.1080/09672560210149242
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
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    7. John King, 1993. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Working Papers 1993.16, School of Economics, La Trobe University.
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    9. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
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    11. David Colander, 1995. "The Stories We Tell: A Reconsideration of AS/AD Analysis," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 169-188, Summer.
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    Cited by:

    1. Max Gillman, 2012. "AS-AD in the Standard Dynamic Neoclassical Model: Business Cycles and Growth Trends," CERS-IE WORKING PAPERS 1222, Institute of Economics, Centre for Economic and Regional Studies.
    2. Max Gillman, 2013. "Lost in Translation: Unified Consumption Theory, Dynamic AS-AD, and Business Cycles," CERS-IE WORKING PAPERS 1305, Institute of Economics, Centre for Economic and Regional Studies.

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    Keywords

    Price; Revenue; Cost; Cross; Profit; As-AD; Cycles;
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