ABSTRACT
In 1929, when the US Gross National Product stood at 103.4 billion dollars, government purchase of goods and services constituted 8.8 billion dollars, or 8.5 percent. By 1980 government purchases had risen to 538.4 billion dollars out of a Gross National Product of 2633.1 billion dollars, or 20.4 percent. Thus by this crudest of measures more than one-fifth of total economic activity was located in the public sector. Whatever else one may say about Keynesian macro-theory, it made a far less clear-cut distinction between normative and positive economic analysis in general and analysis of the role of the public sector in particular than mainstream macro-theory ever did. The branch of mainstream economics that attempts to apply microeconomic theory most directly is, of course, industrial organization. The distinction between mainstream economics and institutionalism is perhaps nowhere as sharp as in the view of the public sector.
