Exit Lucas, Reenter Keynes
AbstractKeynes (1936) said that shortage of money caused by hoarding or failure to invest led to unemployment, but Lucas (1972) said that money does not affect unemployment. The tables have now turned. Gani (2003) produced a model of indirect trade in which money is necessary as a means of payment. Involuntary unemployment occurs under indirect exchange, just when the demand for labor is equal to supply, and the wage rate is precisely the market-clearing one, if and only the necessary money as a means of payment is missing. This seems impossible to those who think of money as merely a numeraire, or a store of value. But if money is a means of payment, then it must be used even when price is right. The relevant new graph drives neutrality away.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0405022.
Length: 6 pages
Date of creation: 23 May 2004
Date of revision:
Note: Type of Document - pdf; pages: 6. Just see how a payment circuit vividly destroys New Classical Macro and rescues Keynes.
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Neutrality; Unemployment; Macroeconomics; Interest; Means of Payment; Circulation of Money. Keynes; Lucas; Mises; Leontief.;
Find related papers by JEL classification:
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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