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Have the Early Coordination Failures Models Achieved Keynes's Programme ?

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  • Michel De Vroey

Abstract

The aim of this paper is to assess how three seminal coordination failure models (Diamond ([1982] [1991]), Howitt [1985] and Roberts [1987]) have fared against ?Keynes?s programme?. The first part of the paper characterises Keynes?s programme as consisting of the following four objectives: (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, and (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes?s programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes? programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept.

Suggested Citation

  • Michel De Vroey, 2005. "Have the Early Coordination Failures Models Achieved Keynes's Programme ?," Revue d'économie politique, Dalloz, vol. 115(4), pages 417-436.
    • Handle: RePEc:cai:repdal:redp_154_0417
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    References listed on IDEAS

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    1. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
    2. Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
    3. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
    4. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(3), pages 441-463.
    5. J. A. Kregel, 1987. "The Effective Demand Approach to Employment and Inflation Analysis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(1), pages 133-145, September.
    6. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-874, December.
    7. Leijonhufvud, Axel, 1983. "What would Keynes have thought of rational expectations?," Discussion Papers, Series I 177, University of Konstanz, Department of Economics.
    8. Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
    9. Shapiro, Carl & Stiglitz, Joseph E, 1985. "Can Unemployment Be Involuntary? Reply [Equilibrium Unemployemnt as a Worker Discipline Device]," American Economic Review, American Economic Association, vol. 75(5), pages 1215-1217, December.
    10. Drazen, Allan, 1987. "Reciprocal externality models of low employment," European Economic Review, Elsevier, vol. 31(1-2), pages 436-443.
    11. Peter Howitt, 1986. "The Keynesian Recovery," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 626-641, November.
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    More about this item

    Keywords

    involuntary unemployment; coordination failures; Keynes;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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