The key behavioral assumption... spending... and portfolio decisions are independent... [A]ccumulation of wealth... [is] separable from... its alloca… - James Tobin

The historic terrain of macro-economic theory is the explanation of the levels and fluctuations of overall economic activity. Macro-economists have been especially interested in the effects of alternative fiscal, financial, and monetary policies.

Keynes did not challenge the efficacy of price adjustment mechanisms in clearing particular markets in the Marshallian partial equilibrium theory on which he had been reared. He did challenge the mindless application of those mechanisms to economy-wide markets. Founding what came to be known as macroeconomics, he was modeling a whole economy as a closed system. He knew he could not use the Marshallian assumption that the clearing of one market could be safely described on the assumption that the rest of the economy was unaffected.

Monetarism—both of the older Friedman version stressing adherence to money stock targets and of the newer rational expectations variety—has been badly discredited. The stage has been set for recovery in the popularity of Keynesian diagnoses and remedies. I do not mean to imply, of course, that there is some Keynesian truth, vintage 1936 or 1961, to which economists and policymakers will or should now return, ignoring the lessons of economic events and of developments in economics itself over these last turbulent fifteen years. I do mean that in the new intellectual synthesis which I hope and expect will emerge to replace the divisive controversies and chaotic debates on macroeconomic policies, Keynesian ideas will have a prominent place.