The Equivalence between Involuntary Unemployment and Effective Demand-Deficiency in Keynesian Theory. A Critical Examination

Using a retrospective methodology, my paper examines critically the insights on involuntary unemployment offered by Keynes in his General Theory. Keynes, it is argued, gave involuntary unemployment a modern micro-founded definition yet –quite opportunely, in view of the difficulty of the task-did not attempt to provide a direct microeconomic explanation of it. Rather, his claim to the demonstration of its existence rests on an indirect argument, where involuntary unemployment emerges as the corollary of effective demand falling short of its full employment level. This justification is based on the more or less tacit assumption that involuntary unemployment and effective demand-deficiency are equivalent, which I dub the "equivalence claim". The latter allowed Keynes to believe that this result about demand-deficiency could be extended to involuntary unemployment. Whereas this claim has an undeniable appeal, constructing a robust argumentation in favor of it, abiding by neoclassical methodological standards, has proven to be a daunting task. Most definitely, its fulfillment is not to be found in the general theory. Nor has it been put forward during the following decades of Keynesian theory. Only recently, are some first signs of such a theoretical accomplishment becoming noticeable. This is shown in the light of a quick assessment of seminal Keynesian works.