Keynes and Samuelson Combined Provided the Complete Foundation for a Science of Macroeconomics: Complexity Modeling Is Welcome, But Not Necessary, for a Scientific Foundation for Macroeconomics

Abstract

Keynes and Samuelson provided the theoretical, technical and mathematical modeling necessary in order to provide a complete scientific foundation for macroeconomic theory. Keynes’s Aggregate Supply Curve (ASC),presented initially on pp. 55-56 in footnote 2 of the General Theory and in great detail in chapter 20, provided the foundations for incorporating multiple equilibria and degrees of uncertainty, based on his analysis of interval valued probability and weight of the evidence from the A Treatise on Probability, into macroeconomic analysis. Keynes’s 1938-39 work on Harrod’s draft copy of dynamic, intertemporal, economic growth, based on multiplier-accelerator interactions, which generated positive feedback impacts, combined with Samuelson’s work on the interaction of the multiplier and accelerator in 1939 and in his dissertation, showed that microeconomic optimization techniques, based on negative feedback, can’t incorporate interactive feedback impacts. They are inapplicable at a macro level dealing with multiple equilibria. Only the stability properties of the multiple equilibria can be examined. It is impossible to determine whether the many, possible, different equilibriums are optimal in the sense of being full employment equilibriums or unemployment equilibriums. Unfortunately, the current dominant approach to macroeconomics, with its claims of constant, inter-temporal, dynamic utility and profit maximization over all times with known subjective probability distributions, is, as Savage stated, “utterly ridiculous”, as well as being “preposterous”. The Lucas-Real Business cycle model approach to macroeconomics with a single representative agent needs to be replaced as soon as possible by the combined work of J M Keynes and Paul Samuelson that was done in the late 1930’s.