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The Role of Wage Flexibility in Keynes's General Theory

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  • Juan Antonio Barraza Magallanes

    (Universidad Autónoma de Ciudad Juárez)

Abstract

The rejection that Keynes does about the second classical postulate explains the asymmetry between entrepreneurs and workers in the determination of the level of employment. This leads to the possibility of equilibrium, in goods and bonds markets, with involuntary unemployment. This is consistent with the idea that unemployment is a normal phenomenon in frictionless market economies. We assume that this opposition to the traditional theory is the essence of the message that Keynes seeks to give in the General Theory. By means of a walrasian general equilibrium model we argue that the rejection of the second postulate is not sufficient to have as a result an equilibrium with excess supply of labor. It is necessary to assume that labor and money have a different theoretical status from commodities. Such conditions imply a change in approaching wage flexibility and its relationship with economic policy. More precisely, it is broken the link between wage flexibility and laissez faire laissez passer's policy.

Suggested Citation

  • Juan Antonio Barraza Magallanes, 2025. "The Role of Wage Flexibility in Keynes's General Theory," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 103, pages 107-128, June.
    • Handle: RePEc:lde:journl:y:2025:i:103:p:107-128
    DOI: 10.17533/udea.le.n103a357093
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    References listed on IDEAS

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    1. Carlo Benetti, 1998. "La structure logique de la Théorie générale de Keynes," Cahiers d'Économie Politique, Programme National Persée, vol. 30(1), pages 11-48.
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    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

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