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Did The Market-Clearing Postulate Pre-Exist New Classical Economics? The Case Of Marshallian Theory

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  • MICHEL DE VROEY

Have new classicists invented market clearing or have they just rehabilitated it? This is the question addressed in the present paper. It is generally agreed that market clearing underpins Walrasian theory, so my exploration is limited to the question of whether this is also true for Marshallian theory. I will claim that this is broadly the case: once Marshallian theory is properly reconstructed, it exhibits market clearing as a constantly present result. Still, an important difference between market clearing à la Walras and market clearing à la Marshall exists: in the former market clearing is equilibrium, while in the latter market clearing can coexist with disequilibrium. Next, I investigate whether my conclusion extends to the labour market. Again the conclusion reached is affirmative both for Marshall's theory and for present-day Marshallian models. As to the latter, I take Friedman's Phillips curve model as a case study. I show that this is a market-clearing model in which, strictly speaking, there is no place for the concept of unemployment-quite an ironical result for the paper that introduced the notion of the natural rate of unemployment! Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd and The University of Manchester.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2007.01020.x
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Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 75 (2007)
Issue (Month): 3 (June)
Pages: 328-348

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Handle: RePEc:bla:manchs:v:75:y:2007:i:3:p:328-348
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  1. Richard Rogerson, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter.
  2. Michel De Vroey, 2004. "Lucas on involuntary unemployment," Cambridge Journal of Economics, Oxford University Press, vol. 28(3), pages 397-411, May.
  3. Ragnar Frisch, 1950. "Alfred Marshall's Theory of Value," The Quarterly Journal of Economics, Oxford University Press, vol. 64(4), pages 495-524.
  4. Brian Snowdon & Howard Vane, 1998. "Transforming macroeconomics: an interview with Robert E. Lucas Jr," Journal of Economic Methodology, Taylor & Francis Journals, vol. 5(1), pages 115-146.
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
  6. Michel De Vroey, 2004. "The History of Macroeconomics Viewed against the Background of the Marshall-Walras Divide," History of Political Economy, Duke University Press, vol. 36(5), pages 57-91, Supplemen.
  7. Michel De Vroey, 2001. "Friedman and Lucas on the Phillips Curve: From a Disequilibrium to an Equilibrium Approach," Eastern Economic Journal, Eastern Economic Association, vol. 27(2), pages 127-148, Spring.
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