Monetarism and Market Clearing

  • Michel De Vroey
  • Hans-Michael Trautwein


The 1970s and the 1980s were marked by fierce controversies between Keynesian and monetarist economists.1 A quarter of a century later, the macroeconomics scene has changed dramatically with the dethroning of Keynesian macroeconomics and its replacement by new classical macroeconomics and real business-cycle models. This evolution can be encapsulated as the rising of Walrasian macroeco-nomics.2 A reshuffling of standpoints has ensued. In the face of this new way of practising macroeconomics, the old foes of Keynesianism and monetarism have discovered that they have more in common than they previously believed, in particular that they share the same Marshallian affiliation.


Labour Market Real Wage Natural Rate Market Equilibrium Market Clearing 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Batyra, A. and M. De Vroey (2009). “From One to Many Islands: The Emergence of Search and Matching Models,” University of Louvain, Department of Economics, Discussion paper N°200905,
  2. Bewley, T. (1999). Why Wages Don’t Fall during a Recession. Cambridge: Cambridge University Press.Google Scholar
  3. Blanchard, O. and L. Summers (1986). “Hysteresis and Unemployment.” NBER Macroeconomics Annual.Google Scholar
  4. Brunner, K. (1983). “Has Monetarism Failed?” Cato Journal 3:1, 23–62.Google Scholar
  5. Brunner, K. and A. Meltzer (1993). Money and the Economy: Issues in Monetary Analysis. Raffaele Mattioli Foundation lectures, Cambridge: Cambridge University press.Google Scholar
  6. De Vroey, M. (2004). Involuntary Unemployment: The Elusive Quest for a Theory. London: Routledge.Google Scholar
  7. De Vroey, M. (2005). “The History of Macroeconomics Viewed Against the Background of the Marshall-Walras Divide.” In M. De Vroey and K. Hoover, eds., The IS-LM Model. Its Rise, Fall and Strange Persistence, Annual Supplement to Volume 36, History of Political Economy. Durham and London: Duke University Press, 2004, pp. 57–91.Google Scholar
  8. De Vroey, M. (2006). “Marshall versus Walras on Equilibrium.” In G. Becattini, M. Dardi, and T. Raffaeli, eds., The Elgar Companion to Marshall. Cheltenham: Edward Elgar, pp. 237–248.Google Scholar
  9. De Vroey, M. (2007). “Did the Market-clearing Postulate Pre-exist New Classical Economics? The Case of Marshallian Theory.” The Manchester School 75, 3–38.Google Scholar
  10. Friedman, M. (1968). “The Role of Monetary Policy.” American Economic Review 58, 1–17.Google Scholar
  11. Friedman, M. (1974a). “A Theoretical Framework for Monetary Analysis.” In R. J. Gordon, ed., Milton Friedman’s Monetary Framework. Chicago: Chicago University Press, pp. 1–62.Google Scholar
  12. Friedman, M. (1974b). “Comments on the Critics.” In R. J. Gordon, ed., Milton Friedman’s Monetary Framework. Chicago: Chicago University Press, pp. 132–177.Google Scholar
  13. Friedman, M. (1976). Price Theory. Chicago: Aldine Publishing Company.Google Scholar
  14. Friedman, M. ([1989] 1997). “John Maynard Keynes.” Federal Reserve Bank of Richmond, Economic Quarterly 83 (2), 1–23.Google Scholar
  15. Frisch, R. (1950). “Alfred Marshall’s Theory of Value.” The Quarterly Journal of Economics 64, 495–524.Google Scholar
  16. Hahn, F. (1995). “Theoretical Reflections on the ‘Natural Rate of Unemployment’.” In R. Cross, ed., The Natural Rate of Unemployment. Reflections on 25 Years of the Hypothesis. Cambridge: Cambridge University Press, pp. 43–56.CrossRefGoogle Scholar
  17. Hall, R. and J. Taylor (1991). Macroeconomics. Theory, Performance, and Policy. New York: Norton.Google Scholar
  18. Hayek, von F. A. ([1937] 1948). “Economics and Knowledge.” In F. A. von Hayek, ed., Individualism and Economic Order. Chicago: The University of Chicago Press, pp.33-55.Google Scholar
  19. Hicks, J. R. (1967). “Monetary Theory and History — an Attempt at Perspective.” In Critical Essays in Monetary Theory. Oxford: Clarendon Press, pp. 155–173.Google Scholar
  20. Laidler, D. (1981). “Monetarism: An Interpretation and an Assessment.” Economic Journal 91, 1–28.Google Scholar
  21. Laidler, D. ([1986] 2001). “The New-Classical Contribution to Macroeconomics.” In Snowdon and Vane, eds., A Macroeconomic Reader. London: Routledge, pp. 334–358.Google Scholar
  22. Laidler, D. ([1991] 2004). “Wage and Price Stickiness in Macroeconomics: An Historical Perspective.” The Thirteenth Henry Thornton Lecture, in Macroeconomics in Retrospect. The Selected Essays of David Laidler. Cheltenham: Edward Elgar.Google Scholar
  23. Laidler, D. (1999). Fabricating the Keynesian Revolution. Studies of the Inter-war Literature on Money, the Cycle, and Unemployment. Cambridge: Cambridge University Press.Google Scholar
  24. Laidler, D. (2005). “Milton Friedman and the Evolution of Macroeconomics.” EPRI Working papers Series, Department of Economics, University of Western Ontario, No. 2005–11.Google Scholar
  25. Laidler, D. (2006). “Keynes and the Birth of Modern Macroeconomics.” In B. Bateman and R. Backhouse, eds., The Cambridge Companion to Keynes. Cambridge: Cambridge University Press, pp. 39–57.CrossRefGoogle Scholar
  26. Leijonhufvud, A. (1968). On Keynesian Economics and the Economics of Keynes. Oxford: Oxford University Press.Google Scholar
  27. Leeson, R. (2000). The Eclipse of Keynesianism. The Political Economy of the Chicago Counter-Revolution. Basingstoke: Palgrave.Google Scholar
  28. Lipsey, R. (1960). “The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1862–1957: A Further Analysis.” Economica February, 1–31.Google Scholar
  29. Lipsey, R. (1974). “The Micro Theory of the Phillips Curve Reconsidered: A Reply to Holmes and Smyth.” Economica 41, 62–70.Google Scholar
  30. Lipsey, R. (1978). “The Place of the Phillips Curve in Macroeconomic Models.” In A. Bergstrom, A. Catt, M. Peston and B. Silverstone, eds. Stability and Inflation, A Volume of Essays to Honour the Memory of A.W.H. Phillips. Chichester: Wiley, pp.49-75.Google Scholar
  31. Lipsey, R. (2000). “IS-LM, Keynesianism, and the New Classicism.” In Backhouse, R. and A. Salanti, eds., Macroeconomics and the Real World, vol. 2 Keynesian Economics, Unemployment and Policy. Oxford: Oxford University Press, pp. 57–82.Google Scholar
  32. Lucas, R. E. Jr. ([1972] 1981). “Expectations and the Neutrality of Money.” In Studies in Business Cycle Theory. Cambridge, MA: The M.I.T. Press, pp. 65–89.Google Scholar
  33. Lucas, R. E. Jr. (1987). Models of Business Cycle. Oxford: Basil Blackwell.Google Scholar
  34. Marshall, A. (1920). Principles of Economics, 8th ed. London: Macmillan.Google Scholar
  35. Matthews, R. (1990). “Marshall and the Labour Market.” In J. Whitaker, ed., Centenary Essays on Alfred Marshall. Cambridge: Cambridge University Press, pp. 14–43.Google Scholar
  36. Modigliani, F. (1944). “Liquidity Preference and the Theory of Interest and Money.“ Econometrica 12, 44–88.Google Scholar
  37. Mortensen, D. (1986). “Job Search and Labour Market Analysis.” In Ashenfelter, O. and R. Layard, eds., Handbook of Labour Economics. Amsterdam: North-Holland, pp. 849–919.Google Scholar
  38. Newman, P. (1965). The Theory of Exchange. Englewood Cliffs: Prentice-Hall.Google Scholar
  39. Pissarides, C. (1990). Equilibrium Unemployment Theory. Oxford: Basil Blackwell.Google Scholar
  40. Rogerson, R. (1997). “Theory Ahead of Language in the Economics of Unemployment.” Journal of Economic Perspectives 11, 73–92.Google Scholar
  41. Santomero, A. and J. Seater (1978). “The Inflation-Unemployment Trade-off: A Critique of the Literature.” Journal of Economic Literature 16, 499–544.Google Scholar
  42. Snowdon, B. and H. Vane (1997). “Modern Macroeconomics and Its Evolution from a Monetarist Perspective: An Interview with Professor Milton Friedman.” Journal of Economic Studies 24:4, 192–222.CrossRefGoogle Scholar
  43. Snowdon, B. and H. Vane (2005). Modern Macroeconomics. Its Origin, Development and Current State. Cheltenham: Edward Elgar.Google Scholar
  44. Tobin, J. (1981). “The Monetarist Counter-Revolution Today. An Appraisal.” Economic Journal 91 (March), 29–42.CrossRefGoogle Scholar
  45. Tobin, J. ([1993] 2001). “Price Flexibility and Output Stability. An Old Keynesian View.” In Snowdon, B. and H. Vane, eds., A Macroeconomic Reader. London: Routledge, pp. 135–155.Google Scholar
  46. Viner, J. ([1931] 1953). “Cost Curves and Supply Curves.” In Stigler, G. and K. Boulding, eds., Readings in Price Theory. London: Allen and Unwin, pp. 198–232.Google Scholar
  47. Walras, L. (1954). Elements of Pure Economics, translated by W. Jaffé. London: Allen and Unwin.Google Scholar


  1. Hicks, J. (1989). A Market Theory of Money. Oxford: Oxford University Press.CrossRefGoogle Scholar
  2. Laidler, D. (1990). Taking Money Seriously, and Other Essays. New York: Phillip Allan.Google Scholar
  3. Laidler, D. (1991). The Golden Age of the Quantity Theory. New York: Phillip Allan.CrossRefGoogle Scholar
  4. Leijonhufvud, A. (2006). “Market Adjustment Processes.” In Tiziano Raffaelli, Giacomo Beccatini, and Marco Dardi, eds., The Elgar Companion to Marshall. Cheltenham: Edward Elgar, pp. 226–235.Google Scholar
  5. Lucas, R. (2004). “My Keynesian Education.” In Michel De Vroey and Kevin Hoover, eds., The IS-LM Model: Its Rise, Fall, and Strange Persistence. Durham: Duke University Press, pp. 12–24.Google Scholar

Copyright information

© Michel De Vroey and Hans-Michael Trautwein 2010

Authors and Affiliations

  • Michel De Vroey
  • Hans-Michael Trautwein

There are no affiliations available

Personalised recommendations