Steve Kates wrote:
> Hick?s 1937 ?Mr Keynes and the Classics? placed the arguments of both sides into an aggregate demand framework. It would at that stage have required someone to point out that IS-LM could not possibly have represented the classical view since it made the comparisons in terms of aggregate demand, the fifth wheel of classical theory. No one of influence came forward, or if they did their voices were not heard, leaving Keynesian economics at the core of macroeconomic theory where it remains to this day.


I take it, Steve, that to influence, by itself, is a criterion for 
including various thoughts in the history of economics. I say this 
because, as I am sure you are aware, there were a number of cogent 
objections (Marget, Hayek, Lachmann, Hazlitt) to the aggregate demand 
notion. It is, of course, a truism that these objections were not 
influential. I think that one can go further and ask how "influence" 
gets produced and maintained. An answer would be useful in understanding 
how correct thoughts get challenged, perverted, and even discarded.

Hayek?s auto-biographical story on this issue is referred to in

Hayek, F. A.(1978) "The Campaign Against Keynesian Inflation." Chapter 
thirteen in Hayek's New Studies in Philosophy, Politics, Economics, and 
the History of Ideas. Chicago: University of Chicago Press.


My suggested answer to the influence question has been the textbook 
phenomenon. Despite its not having a useful meaning, the use of the 
phrase ?aggregate demand? in macro has persisted because it has made it 
easier to teach macro and, like in the 1950s and 1960s, to give students 
a sense that they understand something useful. A small minority of these 
students become teachers themselves and help perpetuate the myth of 
aggregate demand, multiplier, paradox of saving, etc. Clearly, the 
textbook phenomenon is not the only answer but it is one of them, I believe.

The importance of this in the U.S. arose with the creation of the 
president's economic advisors, starting with the years following the 
Unemployment Act of 1946, as U.S. intellectuals and government officials 
scrambled for publicly palatable (and most importantly new) answers to 
how to control unemployment and business cycles. It is probably no 
coincidence that concern over the problems of unemployment an business 
cycles, along with the efforts of postwar econ teachers to increase 
their influence, drove the division of the basic economics course into 
two separate parts: micro and macro.

How the best economists explain economic growth, unemployment, the price 
level and business cycles has changed enormously since the 50s and 60s. 
Aggregate demand has virtually nothing to do with the more modern 
explanations. Yet most textbook writers still treat aggregate demand as 
if it is a useful concept instead of an anachronism. A proper history of 
macroeconomics would try to explain the persistence of this erroneous 
line of thought in the same way that it has tried to explain the 
persistence of the wages fund doctrine and the labor theory of value.

I assume that many on this list would disagree with my statement about 
the uselessness of these Keynesian concepts. If so, perhaps someone 
could explain how, except for describing professional macroeconomics, 
the concepts of aggregate demand, multiplier, etc. are useful.

Pat Gunning