Disequilibrium macroeconomics: an episode in the transformation of modern macroeconomics

ed from issues they could not handle but which enabled them to analyse the dynamics in which they were interested. However, a more common reaction was to focus on the formal models and to confine their theorizing to what could be said rigorously. Founding macroeconomics on rigorous utilitymaximizing microfoundations was important. This was, no doubt, the reason why Patinkin’s Chapter 13 was neglected. It was a major reason why it was Barro and Grossman’s static, atemporal version of disequilibrium macroeconomics triumphed over the then dynamic version offered by Solow and Stiglitz. It was the reason why Barro and Grossman moved away from disequilibrium macroeconomics to the new classical macroeconomics. It was only when, in the late 1970s and in the 1980s, that Stiglitz, Mankiw, Taylor and others began to work out models that were as firmly grounded in individual optimizing models as those of the New Classical Macroeconomics – accepting the New Classical methodology – that the New Keynesian Economics became firmly established. Though New Keynesian Economics formalized many ideas with which the founders of disequilibrium macroeconomics had been concerned, for Clower and Leijonhufvud it represented a taming of their ideas just as Barro and Grossman had done a decade earlier, and they rejected it. Solow and Patinkin (and perhaps Stiglitz) occupied an intermediate position, finding important insights in New Keynesian and other formal models of how markets might work, but retaining an willingness to think that disequilibrium macroeconomics might still be useful as a way of representing intuitive ideas about markets that could not be captured within formal models.