Schools of Thought
Neoclassical Synthesis
Also Known As Neoclassical-Keynesian Synthesis
Citation Formats
General Reference
APA Style
BibTeX
The neoclassical synthesis is the academic movement that reconciled John Maynard Keynes's macroeconomics with the older neoclassical tradition, applying Keynesian short-run analysis (sticky wages and prices, markets that do not clear, a role for government demand management) alongside classical long-run equilibrium theory (markets clear through price and wage adjustment once given enough time). John Hicks's 1937 IS-LM model, which analyzes the goods market and the money market simultaneously, became its central technical tool; Franco Modigliani extended it to incorporate labor markets in 1944; and Paul Samuelson coined the term itself and popularized the whole framework through his best-selling textbook Economics from 1948 onward. The synthesis dominated postwar academic and policy macroeconomics through the 1950s-60s before the 1970s stagflation, simultaneous high inflation and high unemployment the framework's own Phillips curve said should not coexist, triggered its collapse as the reigning consensus.
Whether the synthesis' own account of policy, that Keynesian demand management and neoclassical long-run equilibrium theory could simply be layered together, survives the Lucas critique and the 1970s stagflation evidence is exactly what New Classical economists dispute; see the debated-with edges below.
Facts
Start YearDated to Paul Samuelson's 1948 first edition of Economics, which coined and popularized the term; Hicks' underlying IS-LM model dates to 1937. End YearNo single end date exists; 1973 marks the onset of the 1970s oil-shock stagflation whose Phillips-curve-breaking evidence triggered the synthesis' collapse as the dominant consensus over the following years. Core TenetKeynesian short-run analysis (sticky prices, demand-driven output, a role for stabilization policy) governs the business cycle, while classical long-run equilibrium theory (markets clear through price adjustment) governs the economy's eventual resting state; the two are not rivals but complements operating on different time horizons. 1 Cross-Tradition Connections
Associated With
The synthesis absorbed Keynesian short-run demand management wholesale as its own short-run half, the channel through which Keynes's own ideas reached postwar textbooks and policy.
Rejected Here
Why this is disputed. New Classical economists, Robert Lucas Jr. and Thomas Sargent chief among them, argued the synthesis' own theoretical foundations were fundamentally flawed because it lacked rational expectations, a critique the 1970s stagflation evidence appeared to vindicate.
Sources
1. Wikipedia
Wikimedia FoundationNeoclassical synthesis, lead sectionQuote, Neoclassical synthesis, lead section
The economy operates according to the principles of neoclassical economics in the long run, but in the short run, Keynesian policies can be effective.
1. Wikipedia
Wikimedia FoundationNeoclassical synthesis, HistoryQuote, Neoclassical synthesis, History
Paul Samuelson (1948/1955) - Coined the term neoclassical synthesis and popularized it through his textbook Economics
1. Wikipedia
Wikimedia FoundationNeoclassical synthesis, DeclineQuote, Neoclassical synthesis, Decline
stagflation led to a collapse of the consensus around the neoclassical synthesis
1. Wikipedia
Wikimedia FoundationLead sectionQuote, Lead section
The neoclassical synthesis (NCS), or neoclassical-Keynesian synthesis, is an academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Keynes.
Dissenting Readings (1 dissenting reading)
Description
Robert Lucas Jr. and Thomas Sargent, writing as the 1970s stagflation broke the Phillips-curve tradeoff the synthesis relied on, argued that the doctrine on which the neoclassical synthesis was based was fundamentally flawed at the theoretical level, not merely mismatched to a particular decade's data: its ad hoc Keynesian short-run assumptions had never been derived from the same rational, forward-looking microeconomic foundations the synthesis's own long-run neoclassical half rested on, so a policy analysis built on it could not reliably predict how agents would actually respond to a new policy. This critique, formalized as the Lucas critique, is the direct intellectual root of both New Classical and New Keynesian economics, each in different ways an attempt to rebuild macroeconomics on foundations the synthesis itself lacked.
A dissenting reading, from Robert Lucas Jr. and Thomas SargentWikipedia, Wikimedia Foundation
Reader Challenges (0 open reader challenges)
No disputes yet. Spotted an error or a better source? Open the first one.
Sign in to dispute this or suggest a correction.
View At A Past Year
The atlas records no dated fact of its own for this entry, so there is no other year to choose.