Re: Query on teminology, was Re: . . .labor/gender issues/corporate...

[Peter Dorman <dormanp@xxxxxxxxxxxxx>]

The standard story is that these terms represented confusion in the wake
of Keynes.  Keynes said that most of the story told by classical
economics (by which he meant Marshall) was correct, but that it did not
explain the level of income and employment.  He offered his own theory,
which was quickly seen to be in contradiction to many parts of
conventional wisdom that Keynes himself had seemed to sign on to.

Unable to unite old and new in a single, coherent framework, economists
began speaking of "microeconomics" (supply and demand theory from before
Keynes) and "macroeconomics" (analysis of aggregate-level phenomena
using Keynesian theory).  The so-called neoclassical synthesis of the
post WWII era was really two different bodies of theory laid
side-by-side.

This discrepancy was attacked by the "new classical" school of economics
in the 1970s, which claimed that Keynesian theory was erroneous, and
that all phenomena, aggregate and market-level, could be explained by
the same (supply and demand) theory.  Some of these people rejected
macroeconomics as a separate subdiscipline, and I've heard that a few
grad schools eliminated their macro courses.

Since then, most of the mainstream has regrouped around some version of
the "new Keynesian" story, in which detailed microeconomic
(market-level) analyses are used to justify a watered-down version of
Keynes.  They tend to speak about the "micro foundations of macro".
Nevertheless, the sphere in which even diluted Keynesianism is applied
has shrunk, and many aggregate-level models are based completely on
market-level elements.  (Look at all the work on savings, for instance,
using an overlapping-generations model of household utility
maximization.)

Peter

ps: By "supply and demand" I mean models in which the units of analysis
are "households" and "firms" which purportedly maximize utility and
profits.  Keynesian analysis is based essentially on the conditions that
must hold if aggregate levels of employment, income, asset values, trade
flows, etc. are to be consistent with one another.