Keynes, the “Classics,” and the “New Classics”: A Simple Presentation of Basic Differences

This chapter reformulates the static foundations of “Keynesian macrodynamics” and their proper interpretation in an economically consistent and complete way. It is one of its aims here to lay the ground for a critique of conventional representations of “Keynesian dynamics” by indicating how certain deficiencies of these dynamic models can be attributed to a wrong understanding of their static components, that is, of the Keynesian concept of temporary equilibrium and the adjustment processes that are compatible with it. Its central purpose thus is to provide a clear picture (model) of the basic steps and components of Keynes' revolution of macroeconomic thinking.

This will be done by taking as starting point the conventional synthetic model of “Classical Macroeconomics” and by providing a description of it as consistent and complete as possible, in particular with regard to its representation of Say's Law [the central point in Keynes' attack on the “Classics”!]. In our view, this Law has not yet been given a sufficiently exact expression in this type of model, which also implies that an exact critique à la Keynes of the defects of this Law has generally not been provided in the literature so far.