The fundamental problem with the IS curve is that the equilibrium condition that defines the curve ignores the crucial difference between ex ante and ex post savings and investment. Ex post investment always equals savings, i.e., if investment is taking place, the savings must have come from somewhere. However, investment and savings need not be equal ex ante, and this is the point that IS-LM analysis is unable to handle. If the market rate of interest is inconsistent with the underlying preferences of savers and investors, then ex ante savings and investment may not be equal, triggering system-wide changes in prices and resource allocation, including labor. The whole Wicksellian / monetary equilibrium tradition we shall explore is centered around the way that market forces attempt to correct ex ante disequilibria, and the patterns of discoordination that such attempts can engender. For Wicksellians, it is ex ante disequilibria in the loanable funds market that explain movements in the price level and the resulting economic discoordination. However, by not addressing the possibility of ex ante disequilibrium, the IS-LM mechanism, and Keynes of The General Theory, overlook the entire set of problems that interest a post-Wicksellian, and to that extent Austrian, macroeconomist.
—Steven Horwitz, introduction to Microfoundations and Macroeconomics: An Austrian Perspective, Foundations of the Market Economy (London: Taylor & Francis e-Library, 2003), 8-9.
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