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Exit Lucas, Reenter Keynes


  • Mohammad Gani

    (Economic Science Institute, Dhaka, Bangladesh.)


Keynes (1936) said that shortage of money caused by hoarding or failure to invest led to unemployment, but Lucas (1972) said that money does not affect unemployment. The tables have now turned. Gani (2003) produced a model of indirect trade in which money is necessary as a means of payment. Involuntary unemployment occurs under indirect exchange, just when the demand for labor is equal to supply, and the wage rate is precisely the market-clearing one, if and only the necessary money as a means of payment is missing. This seems impossible to those who think of money as merely a numeraire, or a store of value. But if money is a means of payment, then it must be used even when price is right. The relevant new graph drives neutrality away.

Suggested Citation

  • Mohammad Gani, 2004. "Exit Lucas, Reenter Keynes," Macroeconomics 0405022, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0405022
    Note: Type of Document - pdf; pages: 6. Just see how a payment circuit vividly destroys New Classical Macro and rescues Keynes.

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    References listed on IDEAS

    1. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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    More about this item


    Neutrality; Unemployment; Macroeconomics; Interest; Means of Payment; Circulation of Money. Keynes; Lucas; Mises; Leontief.;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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