A nice paper by Kevin Hoover.
He says the initial macro framework famously called as Keynesian was not really because of Keynes. It was basically the work of Ragnar Frisch and Jan Tinbergen who have to be blamed if blamed is the right word. He gives an amazing short history of macro:
Broadly it goes like this: Once upon a time, economists were the champions of laissez faire. Then, along came the Great Depression. Keynes declared the end of laissez faire and provided us in his General Theory with an alternative. Thus, in creating the antithesis between microeconomics and macroeconomics, Keynes created a dialectical tension that Paul Samuelson then resolved with his neoclassical synthesis. And then Keynesian economics ruled the policy roost.
But Keynes provided no theory of inflation. Phillips introduced his curve and provided policymakers with an instrument through which they could exchange inflation for unemployment. But Cassandra in the form of Milton Friedman presciently warned that the heady days of aggregate demand management would lead to the collapse of the Keynesian economists’ Troy. The stagflation of the early 1970s blasted holes in the ramparts of Keynesian economic management, and Friedman’s monetarism was there to fill the breach.
But Friedman’s monetarism did not get to the root of the problem with Keynes: real economics is microeconomics and – despite Samuelson’s irenic doctrine of the neoclassical synthesis – Keynes failed to build on adequate microfoundations.
Robert Lucas, Thomas Sargent and others introduced the new classical macroeconomics, which supported monetarists policies, but did so on a rigorous microfoundational analysis. Nostalgic for Keynesian policy conclusions, the New Keynesians adopted
New Classical microfoundational methods while still addressing the problems of market failures. With that, we have reached the situation of macroeconomics today – at least as it is taught to undergraduate and graduate students alike.
He says much of this history is wrong:
I cannot begin to say all that is wrong with this potted history. But, love him or hate him, please note that Keynes stands at its center. And while no story maintains its currency for long if it is totally unconnected to the truth, this story is misleading or wrong in nearly every respect – not least in its dramatis personae. At a bare minimum, we must add the names of Ragnar Frisch and Jan Tinbergen to the history of macroeconomics.
Most of the pieces of the alternative story have been noticed by other scholars, but rarely have the pieces been put together. And I believe that they should be put together to craft a different history for macroeconomics – one in which Keynes remains important, but not preeminent, and one in which a tension between competing visions of macroeconomics is central. One result of this reappraisal will be to present Keynes as a substantially different thinker than he is regarded in our potted textbook histories.
So the author gives two visions for macro. One the mechanical vision as proposed by Frisch and Tinbergen much of it was based on Physics. Second the medical vision given by Keynes:
In contrast to Frisch and Tinbergen, physics did not animate Keynes’s research strategy. He was not hostile to mathematics generally, having read mathematics at King’s College, Cambridge and graduated 12th wrangler. His fellowship essay for King’s was later published as his Treatise on Probability. Economics was not in Keynes’s course of study; it was in his blood. When Keynes was student, economics formed part of the moral sciences tripos and was not an independent course of study. Keynes’s father was himself a Cambridge economist; and Keynes absorbed economics both from formal study and from being dandled, as it were, on the knee of that Cambridge hero Alfred Marshall.
He goes on to suggest how Keynes ideas were closer to man (irrational, different tastes etc) than the machine which Frisch/Tinbergen painted.
Nice tale and perspective on econ history..