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The author examines the argument elaborated by Pigou in his Employment and Equilibrium. A Theoretical Discussion which was the first comprehensive answer Pigou gave to the analysis put forward by Keynes in his General Theory. The chapter consists of seven sections. In the first, the motivation of the chapter is outlined. In the second, third, and fourth sections, the author will concentrate on how Pigou elucidates the conditions necessary for an economic system to attain a short period flow equilibrium. In this context, the author elaborates an “open” macro model which can be “closed” in two different ways. The chapter will also present a diagrammatic analysis of Pigou’s theory in the two cases elucidating the structure and the working of the model. Differences with the author’s previous book (TU) related to (real/monetary) wage inflexibility and the importance of monetary factors are also described and discussed. Pigou however does not limit himself to deal with the short period but engages in an interesting discussion of the long period centered on the notion of stationary state that is the object of section five. In this way, he admits that Keynes’s theory is not limited, to the short run. In arguing along these lines, he comes close to describe what will be recognized later as the Pigou effect. A short comparison with the renewed stagnationist theory is sketched. The sixth section includes a brief discussion of the comparative statics and dynamic analyzes elaborated by Pigou. A final section including a few conclusions completes the chapter.

This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt that the Great Depression exerted an enormous influence on economic thought, but the exact nature of its impact should be examined more carefully. In this chapter, I examine the transformation from a perspective which emphasizes the interaction between economic ideas and economic events, and the interaction between theory and policy rather than the development of economic theory. More specifically, I examine the evolution of what became known as macroeconomics after the Depression in terms of an ongoing debate among the “stabilizers” and their critics. I further suggest using four perspectives, or schools of thought, as measures to locate the evolution and transformation; the gold standard mentality, liquidationism, the Treasury view, and the real-bills doctrine. By highlighting these four economic ideas, I argue that what happened during the Great Depression was the retreat of the gold standard mentality, the complete demise of liquidationism and the Treasury view, and the strange survival of the real-bills doctrine. Each of those transformations happened not in response to internal debates in the discipline, but in response to government policies and real-world events.

Marshall, Pigou, and Keynes on one side of the Atlantic, and Fisher on the other, had different approaches to the quantity theory of money. But they shared its basic framework, with the result that theoretical discussions did not prevent some degree of mutual support on policy proposals. If a divergence there was, at this stage, this pertained the feasibility of Fisher’s proposals, because Fisher’s enthusiasm for reform could find no match at Cambridge. This notwithstanding, and although in varying degrees, Marshall, Pigou, and Keynes were sympathetic with Fisher’s battle for “stable money.” Indeed, a fragment from the Keynes Papers shows that, at a very early stage of his career, Keynes paid great attention to Fisher’s empirical research on the relationship between “Appreciation and interest,” taking the relation between nominal and real rates of interest as a possible explanation of the trade cycle. For some time at least, this widened the common ground upon which Fisher’s proposals for “stable money” could find some support at Cambridge.

The notes reproduced here were taken by Glenn Johnson in Lloyd Mints’ course on Money and Banking at the University of Chicago in the fall of 1946. Several additional sets of course notes taken by Glenn Johnson have been published in the archival volumes of Research in the History of Economic Thought and Methodology. These included notes from Frank Knight's course on economic theory (Volume 24C) and Albert L. Meyer's course entitled elements of modern economics (appearing in this volume). A brief biography of Glenn Johnson is provided in Volume 24C, along with notes from his course on Agricultural Economics Methodology taught at Michigan State University.

The paper published below was prepared by Taylor Ostrander for Frank Knight’s course, Economic Theory, Economics 301, during the Fall 1933 quarter.

Ideology as a mixture of consciously or unconsciously accepted ideas and beliefs provides the underlying support or rationalisation for fundamental features of thought and action in a society. A vigorously promoted contending ideology may at any given time also influence developments. Value judgments, which are likewise not based on the logical rules of observation and verification, may for present purposes be taken as concerned with less comprehensive or less fundamental matters than ideology.

The controversy between Hayek and Keynes in the 1930s is probably one of the best‐known disputes in economics and several comments have been made on this episode (Hicks, 1967; Machlup, 1977; Fletcher, 1987). In the assessments little attention has been paid to the development of the ideas of the two economists, to the views they had in common and to the influence they had on each other. These aspects will be taken into consideration in this contribution with the aim of extending our knowledge of the fundamental points of disagreement between them. The crucial question is how it came about that Hayek and Keynes, who for some time studied very similar monetary problems, ended as such fierce opponents on the question of how a modern capitalist system works. Keynes went as far as denying that the market system is self‐adjusting, whereas Hayek, especially in his later writings, propounded the view that markets constitute an efficient mechanism for the satisfaction of human needs.