Exit Lucas, Reenter Keynes
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.
|Date of creation:||23 May 2004|
|Note:||Type of Document - pdf; pages: 6. Just see how a payment circuit vividly destroys New Classical Macro and rescues Keynes.|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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- 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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