â€˜Right Back Where We Started Fromâ€™: from â€˜the Classicsâ€™ to Keynes, and back again
AbstractThe purpose of this paper is to highlight the curiously circular course followed by mainstream macroeconomic thinking in recent times. Having broken from classical orthodoxy in the late 1930s via Keynesâ€™s General Theory, over the last three or four decades the mainstream conventional wisdom, regressing rather than progressing, has now come to embrace a conception of the working of the macroeconomy which is again of a classical, essentially pre-Keynesian, character. At the core of the analysis presented in the typical contemporary macro textbook is the (neo)classical model of the labour market, which represents employment as determined (given conditions of productivity) by the terms of labour supply. While it is allowed that changes in aggregate demand may temporarily affect output and employment, the contention is that in due course employment will automatically return to its â€˜naturalâ€™ (full employment) level. Unemployment is therefore identified as a merely frictional or voluntary phenomenon: involuntary unemployment - in other words persisting demand-deficient unemployment - is entirely absent from the picture. Variations in aggregate demand are understood to have a lasting impact only on the price level, not on output and employment. This in effect amounts to a return to a Pigouvian conception such as targeted by Keynes in the General Theory. We take the view that this reversion to ideas which should by now be obsolete reflects not the discovery of logical or empirical deficiencies in the Keynes analysis, but results rather from doctrinaire blindness and failure of scholarship on account of which essential features of the Keynes theory have been overlooked or misrepresented. There is an urgent need for a critical appraisal of the current conventional macroeconomic wisdom.
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Bibliographic InfoPaper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1401.
Length: 24 pages
Date of creation: Jan 2014
Date of revision:
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More information through EDIRC
Keynesâ€™s General Theory; â€˜classicalâ€™ macroeconomics; involuntary unemployment; the AD/AS model;
Find related papers by JEL classification:
- B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-15 (All new papers)
- NEP-HPE-2014-02-15 (History & Philosophy of Economics)
- NEP-MAC-2014-02-15 (Macroeconomics)
- NEP-PKE-2014-02-15 (Post Keynesian Economics)
- NEP-SOG-2014-02-15 (Sociology of Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Scarth, 2010. "Aggregate Demand-Supply Analysis and Its Critics: An Evaluation of the Controversy," Review of Radical Political Economics, Union for Radical Political Economics, vol. 42(3), pages 321-326, September.
- Fred Moseley & Roy Grieve, 2010. "Reply to Scarth," Review of Radical Political Economics, Union for Radical Political Economics, vol. 42(3), pages 327-329, September.
- Roy H. Grieve, 2010. "Time to Ditch AD-AS?," Review of Radical Political Economics, Union for Radical Political Economics, vol. 42(3), pages 315-320, September.
- David Colander, 1995. "The Stories We Tell: A Reconsideration of AS/AD Analysis," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 169-188, Summer.
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