Price and Prejudice. The statics and dynamics of money-wage flexibility
Keynesâ€™s dynamic, open-end approach to money-wage flexibility is contrasted with the subsequent rehabilitation of the static analysis of the problem, which has led to the â€˜closureâ€™ of the Keynesian system and the vindication of the economyâ€™s capacity for selfadjustment. Not even in static analysis, it is further maintained, can money-wage flexibility be counted on to bring about a rise in aggregate demand and employment. For the flaws in the logical basis of the decreasing relationship between the demand for capital and the rate of interest undermine the â€˜Keynes effect,â€™ so that the AD curve - predominantly governed by the deflation-induced redistribution of real wealth from debtors to creditors - assumes an upward-sloping shape at all price levels. As against the claim that after a sufficiently long period of time the â€˜Pigou,â€™ or â€˜real balanceâ€™ effect, will prevail over the above redistribution (or â€˜reverse Pigouâ€™) effect, it is contended that long-lasting excess capacity and unemployment will cause both the productive capacity installed to shrink and â€˜discouragedâ€™ workers to leave the labour market. Unemployment may thus disappear through an entirely different road than those envisaged by believers in the self-adjusting properties of the economic system.
|Date of creation:||Aug 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Via Del Castro Laurenziano 9, 00161 Roma|
Phone: +39 6 49766353
Fax: +39 6 4462040
Web page: http://www.dipecodir.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kevin A. Hassett & R. Glenn Hubbard, 1996.
"Tax Policy and Investment,"
NBER Working Papers
5683, National Bureau of Economic Research, Inc.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Garegnani, Pierangelo, 1978.
"Notes on Consumption, Investment and Effective Demand: I,"
Cambridge Journal of Economics,
Oxford University Press, vol. 2(4), pages 335-53, December.
- Garegnani, Pierangelo, 1979. "Notes on Consumption, Investment and Effective Demand: II," Cambridge Journal of Economics, Oxford University Press, vol. 3(1), pages 63-82, March.
When requesting a correction, please mention this item's handle: RePEc:sap:wpaper:wp86. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luisa Giuriato)
If references are entirely missing, you can add them using this form.