The Clark-Walras Confluence Is Apparent Throughout Modern (Mainstream) Macroeconomic Models

Essentially, neoclassical macroeconomics, which forms the foundation of Keynesian, monetarist, and other modern theories, envisions the economy as a collection of large aggregates in a timeless dimension of simultaneous production and consumption. Although its roots can be traced back as far as Adam Smith and the “classical” economists, the modern formula goes back primarily to John Bates Clark, who envisioned the economy as a large reservoir, where the production of goods and services are seen as a permanent, malleable, flowing fund, and to Leon Walras, who saw the economy in a horizontal, timeless fashion where the factors of production were converted instantly into final consumer products.

This Clark-Walras confluence is apparent throughout modern macroeconomic models—in the circular flow diagram, the neoclassical production function, capital theory, the Keynesian consumption function, the monetary “cash balance” effect, and aggregate supply and demand curves.

—Mark Skousen, The Structure of Production, new rev. ed. (New York: New York University Press, 2015), 2.