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Capital Accumulation, Technical Progress and Labour Supply Growth: Keynes's Approach to Aggregate Supply and Demand Analysis Revisited


  • Alfonso Palacio-Vera


This paper addresses the effects on employment and the price level of a range of factors including capital accumulation, technical progress and money wage changes by formalising the aggregate supply and demand framework posited by Keynes in his General Theory. We find that labour-augmenting technical progress reduces the equilibrium level of employment, thus lending support to Hansen's notion of technological unemployment. We also find that capital accumulation and capital-augmenting technical progress raise the level of employment whereas, as argued by Keynes and several subsequent authors, money wage cuts have an ambiguous effect on the level of employment. We discuss a number of results as well as some aspects related to the adjustment of aggregate demand to aggregate supply in the long run. We conclude that Keynes's aggregate supply and demand framework provides a robust explanation of the mechanism through which increases in potential output lead over time to equiproportional increases in the level of aggregate demand and that the mechanism of adjustment to increases in the labour force in Keynes's theory differs markedly from that in classical theory.

Suggested Citation

  • Alfonso Palacio-Vera, 2009. "Capital Accumulation, Technical Progress and Labour Supply Growth: Keynes's Approach to Aggregate Supply and Demand Analysis Revisited," Review of Political Economy, Taylor & Francis Journals, vol. 21(1), pages 23-49.
  • Handle: RePEc:taf:revpoe:v:21:y:2009:i:1:p:23-49 DOI: 10.1080/09538250802516974

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    References listed on IDEAS

    1. John King, 1993. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Working Papers 1993.16, School of Economics, La Trobe University.
    2. J. E. King, 1994. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(1), pages 3-31, September.
    3. Kregel, J A, 1976. "Economic Methodology in the Face of Uncertainty: The Modelling Methods of Keynes and the Post-Keynesians," Economic Journal, Royal Economic Society, vol. 86(342), pages 209-225, June.
    4. H. Vandenborre, 1958. "An Integration Of Employment Economics Within The Keynesian Theory Of Money Flows," Oxford Economic Papers, Oxford University Press, vol. 10(2), pages 205-219.
    5. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
    6. Casarosa, Carlo, 1981. "The Microfoundations of Keynes's Aggregate Supply and Expected Demand Analysis," Economic Journal, Royal Economic Society, vol. 91(361), pages 188-194, March.
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    Cited by:

    1. repec:taf:revpoe:v:29:y:2017:i:3:p:360-375 is not listed on IDEAS
    2. Jochen Hartwig, 2017. "The Comparative Statics of Effective Demand," Review of Political Economy, Taylor & Francis Journals, vol. 29(3), pages 360-375, July.
    3. Jochen Hartwig, 2009. "D and Z in ROPE," KOF Working papers 09-243, KOF Swiss Economic Institute, ETH Zurich.

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