The Multiplier as Matrix

The great attraction of the Keynesian system is its simplicity, which is, at the same time, its danger and its limitation. I propose to indicate how we may relax its cruder aggregative aspects without too hopelessly complicating matters. To accomplish this step we naturally turn to the Leontief matrix as an adequately simple representation of general equilibrium. Yet it is generically different from the Keynesian system by being homogeneous, i.e. the proportions are unique, but the scale of the whole system may be any multiple of the correct proportions. Only a small change is required to transform the one into the other, but it is just this small change which is necessary to study the short run generation and propagation of income.