DRAFT The History of Macroeconomics Viewed Against the Background of the Marshall - Walras Divide Michel

The demise of the IS-LM model and its replacement by stochastic intertemporal equilibrium models is probably the most salient change that occurred in macroeconomics during the last quarter of the twentieth century, a shift that many commentators have viewed as a Kuhnian scientific revolution. My aim in this paper is to analyse it against the background of what I call the Marshall-Walras divide. According to the latter, the contributions of Marshall and Walras to economic theory are less complementary than usually believed. Instead, the Marshallian and the Walrasian approaches are considered alternative research programmes. This, I will claim, has a direct bearing on the unfolding of macroeconomics: the change that has taken place is the invention of Walrasian macroeconomics and its substitution to Marshallian macroeconomics. This claim is not entirely original. It was voiced by some authors who studied what at the time was called " Monetarism Mark I " and " Monetarism Mark II " , associated respectively with Friedman's and Lucas's Phillips curve models (Friedman 1968, Lucas 1972). 1 The specific contribution of my paper is twofold. First, it gives a more systematic study of the Marshall-Walras difference and, second, it covers a scope that is wider than the mere confrontation of Friedman's and Lucas's standpoints. 2 In section 2, I survey a few papers aiming at assessing the present state of macroeconomics. Preliminary clarification tasks are undertaken in the next three sections. They bear on the meaning and scope of macroeconomics, the " Keynesian " label, and the contents of the neoclassical synthesis. In section 6, I justify my claim as to the Marshall-Walras divide. Finally, in section 7, I use it as a clue for explaining the recent developments in macroeconomics. 2. A survey of recent critical assessments My starting point is Blanchard's and Woodford's surveys of the history of macroeconomics written on the occasion of the turn of the century. Blanchard (2000) divides the history of macroeconomics in three stages: pre 1940, a period of exploration, from 1940 to 1980, a period of consolidation, and since 1980, a new period of consolidation. He views the passage from the IS-LM model to real business cycle models as a smooth evolutionary process. One stage within it is the dynamization of the static IS-LM model by authors such as Modigliani, Friedman, and Tobin who were able to recast some of 1 For example, Hoover noted that " Friedman, …