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Revisiting the unemployment controversy: Pigou's viewpoint

Listed author(s):
  • Norikazu Takami


    (the Graduate School of Economics, Osaka University and Suntory Foundation Torii Fellow)

This paper examines the unemployment controversy between J. M. Keynes and A. C. Pigou, mainly from the latter's viewpoint. In this controversy, although he eventually conceded de- feat, Pigou attempted to prove that money wage cuts were effective on employment regardless of the level of interest rate. His defeat in the controversy was not due to the inconsistency in his perspective, but rather due to his inability to theorize a relevant notion, \forced anti- levies" as expounded in Industrial Fluctuations (1927). The \Pigou effect" devised later in 1943 could be considered as theorization of forced anti-levies. This allowed Pigou to formally demonstrate that money wage cuts were effective in increasing employment regardless of the level of interest rate. Thus, we conclude that the unemployment controversy was gainful at least to Pigou, resulting in the formulation of the notion originated in Industrial Fluctuations.

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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 09-27.

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Length: 35 pages
Date of creation: Aug 2009
Handle: RePEc:osk:wpaper:0927
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