The alternative model

The AS-AD model's implications have been questioned both on the empirical ground and in the history of economic thought. On the latter ground, what unifies "critical" schools of though is the rejection of the notion of "natural equilibrium", which is replaced by a conflictual notion of social relations in a capitalist economy. We thus focus on this feature so as to present a model which is alternative to the AS-AD, as it denies the fundamental tenets on which the mainstream model rests on: the inverse relation between prices and aggregate demand and the exogenous nature of the mark-up and of the bargaining power of workers. The implications in terms of economic policy are very different with respect to those of the mainstream analysis. The Chapter is concluded by a debate on the validity of the alternative model when it is challenged by the mainstream critiques and empirical assessment.