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.
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- Barro, Robert J, 1974.
"Are Government Bonds Net Wealth?,"
Journal of Political Economy,
University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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- Kevin A. Hassett, 1999. "Tax Policy and Investment," Books, American Enterprise Institute, number 53049, February.
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