Blog-Reference and Blog-Reference
Brad DeLong summarizes: “But I believe that whenever anybody says “I don’t teach IS-LM” they are one of:
1. Making completely implausible and wrong claims about how the economy works.
2. Being lazy and/or stupid.
3. Declaring a tribal affiliation to xxx that I think has shed a lot more heat than light on real issues.”
Fact of the matter is that IS-LM is axiomatically false. Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)
This elementary syllogism is conceptually defective because Keynes never came to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Keynes had no idea what profit is, neither had After-Keynesians. As a result, all I=S models, all IS-LM models, the Keynesian multiplier, Post Keynesianism, and New Keynesianism are false.#1
So, whenever anybody says “I apply a variant of IS-LM” they are one of:
1. Taking provable false macro axioms as formal foundations.
2. Not knowing what profit, i.e. the pivotal economic magnitude, is.
3. Being moronic and/or imbecile and/or committing scientific suicide.”#2
#1 See also ‘The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment’
and ‘Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It’
#2 For details of the big picture see cross-references Refutation of I=S