Challenging the Supply-side Vision of the Long Run
Edited by Mark Setterfield
Chapter 9: Longer-run Aspects of Kaleckian Macroeconomics
Tracy Mott1 INTRODUCTION The significance of Ôlonger-runÕ factors was soon appealed to as a counter to the conclusions of ÔKeynesianÕ macroeconomics following the publication of J.M. KeynesÕs General Theory in 1936. The first major use of such was by A.C. Pigou (1943). The idea that money wage and price-level changes would eventually occur in response to aggregate demand effects on output and employment was well acknowledged by Keynes. What Keynes denied that Pigou sought to demonstrate was that money wage or price-level movements are capable of restoring the full employment level of output in an economy. PigouÕs argument was never championed as a device that would continuously maintain full employment, and many economists who found the logic of the argument convincing held that its workings would require too long a time for it to have practical significance. Coupled with the notion of the stability of the demand for money, however, ÔmonetaristsÕ, led by Milton Friedman, posited that the return to a level of output consistent with the Ônatural rateÕ of unemployment would occur soon enough as to make the use of activist demand-management policies pointless and perhaps even destabilizing.2 The occurrence of price inflation at levels of unemployment thought to be significantly above full employment in the industrialized capitalist economies in the 1970s was taken by many as supportive of this view. Most macroeconomists were willing to agree that in the Ôlong runÕ, aggregate output and employment are determined by the supplies of labour and capital desiring to...
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