ABSTRACT
The ISLM model that Hicks produced to “elucidate the relation between Mr Keynes and the ‘classics’” became one of the most widely used models in economics in the second half of the 20th century. However, it came to be supported much less wholeheartedly by its creator than by the majority of the economics profession, who use it for many purposes including deriving the aggregate demand curve in aggregate demand and aggregate supply analysis. Hicks’ reservations relate to the equilibrium nature of the analysis and especially to the implications of this for expectations. This article contrasts the way equilibrium and expectations are handled in ISLM and the General Theory and discusses issues arising from that contrast. The conclusion is reached that ISLM may be of some help to economic historians interpreting the state of an economy in the past, but is unsuitable for the analysis of policy changes or forecasting more generally.
