TheMultiplierProcessasMarketExchangeProcessAContributiontotheMicroFoundationofKeynesianMacroeconomicsGangGong#Feb.,1995TheauthorisverygratefultoEdwardNell,WilliSemmler,DuncanFoley,DavidColander,JohnEatwell,PaulDavidsonandWilliamMilbergfortheircommentsandsuggestionsontheearlydraftofthispaper.#.Dept.ofeconomics,GraduateFaculty,NewSchoolforSocialResearch,65FifthAve.NewYork,NY10003.093992@newschool.edu.TheMultiplierProcessasMarketExchangeProcessAContributiontotheMicroFoundationofKeynesianMacroeconomicsAbstractTraditionalequilibriumanalysishasbeenincorrectlyfoundedoncean"orderingissue"isconcerned.Tocircumventthisproblem,theautonomousdemand,whichhasbeenmissedintraditionalmicroeconomicanalysis,hastobeintroducedintothesystemasastartingpointofasequenceofmarketexchanges.Followingthisdirection,Keynes'smultiplieranalysiscanalsobeviewedasadescriptionoftheprocessthroughwhichmarketexchangesaregenerated.Further,theKeynesianmacroeconomicrelationcanalsobeprovedwithinamicroeconomiccontext.(JELD0,E0)"Theconsensusinmacroeconomicsthatprevaileduntiltheearly1970sfalteredbecauseoftwoflaws,oneempiricalandtheothertheoretical....Thetheoreticalflawwasthattheconsensusviewleftachasmbetweenmicroeconomicprinciplesandmacroeconomicpracticethatwastoogreattobeintellectuallysatisfying."(Mankiw,1990,pp.1647)I.IntroductionLasttwentyyearshavewitnessedtwooppositeresearchdirections.One,entitledasNewClassical,istoexplainmacroeconomicphenomenabasedonanindividualchoice-theoreticframeworkoftraditionalmicroeconomics¾thoughtheaxiomofrationalexpectationisoftenadopted.TheotheristheattempttoreconstructmicroeconomicssoastoputKeynesianmacro-analysisonafirmerfoundation.ThiscategoryisnowtermedNewKeynesian.Isthe"chasm"stillleft?Webelieve(indeedmanybelieve)"itis!".ItisstillnotobviouswhatisthemicrofoundationofKeynesianmacroeconomics.Thispaperwillpresentmyowncontributiontothissubject.IbelievethemicrofoundationofKeynesianmacroeconomicsexistsinthecontextofKeynes'smultiplierprinciple.Specifically,Keynes'smultiplieranalysiscanalsobeviewedasadescriptionoftheprocessthroughwhichmarketexchangesaregenerated.Thisconsiderationprovidesusanewtheoreticalframework.Thewayaneconomyoperatesiscompletelydifferentfromthewaydescribedbytraditionalequilibriumanalysis.Eventheconceptofequilibriumhastobechanged.Yetthenewtheoreticalframeworkprovidedhereturnsouttobemuchsuperiorinthesensethatmanymysteriesoftraditionalmicroeconomicsautomaticallydisappearandfurther,theKeynesianmacroeconomicrelationisexactlyspecifiedinamicroeconomiccontext.Thepaperisorganizedasfollows.First,Iwillraiseanissue,whichIbelievehaslongbeensuppressedineconomicliterature.Thisissueiscrucial,forthetheoreticalframeworkoftraditionalequilibriumanalysisisincorrectlyfoundedoncethisissueisconcerned.Myowncontribution,however,isexactlygeneratedfrommyattempttodealwiththisissue.IthenexposehowKeynes'smultiplieranalysiscanbeunderstoodasanapproachtodescribethegenerationprocessofmarketexchanges.Therearetwowaysofthisexposition:oneIcalltheforwardexpositionandtheotherthebackwardexposition.Thentwopossibledoubtswillbeaddressed,whichseemtobe,intheviewofmanyeconomists,unsatisfactorytothemultipliertheory.AmathematicalmodelwillfollowtoshowhowKeynesianmacroeconomicrelationcanbespecifiedinmymicromodelofmarketexchange.Finally,therelationbetweenthismultiplierapproachtootherapproachesonthissubjectwillbediscussed.II...
