ABSTRACT
While Friedman paved the way, the decisive role in the dismissal of Keynesian economics was played by Lucas.1 Put crudely, the standard view is that ‘Keynesianism’ was overthrown in a two-step revolution, the first stage of which is associated with monetarism and the second with new classical macroeconomics. Such a formulation suggests a line of continuity between monetarism and new classicism. On the contrary, I argue that the watershed should be located between Friedman and Lucas. In other words, the real divide separates an era of ‘Marshallian macroeconomics’ from one of ‘Walrasian macroeconomics’.2 The first era was a period where the IS-LM apparatus was the cornerstone of macroeconomic thinking, shared by both friends and foes of Keynes, Friedman being the best example of the latter group. The second era marks the dethroning of ISLM and its replacement by a new theoretical apparatus, the dynamic macro model.
