Blackwell Reference Online

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Despite a degree of arbitrariness, World War II provides a natural division in the history of macroeconomics. The macroeconomics of the interwar period was a rich tapestry of competing models and methodologies, pursued with a sophistication that was only gradually regained in the postwar period (see chs. 19 and 20; Laidler, 1999 ). John Maynard Keynes's The General Theory of Employment, Interest and Money , published in 1936, three years before the onset of war in Europe, appeared to many as an important, but not preeminent, contribution to the contemporary debates. Yet, by 1945, Keynesian macroeconomics was clearly ascendant. Keynes provided a conceptual framework that greatly simplified professional discussions of macroeconomic policy. The main elements were: (i) an aggregative analysis - his key distinction between the economics of individual or firm decision-making, taking aggregate output as fixed, and the economics of output and employment as a whole supplies the content, if the not the name, of the now common distinction between microeconomics and macroeconomics; (ii) the determination of aggregate output by aggregate analogues to Marshallian supply and demand; (iii) the possibility (even likelihood) that aggregate supply and demand could determine a level of output at which resources were not fully employed; and (iv) the possibility that monetary and fiscal policies could ... log in or subscribe to read full text