Unemployment, Recession and Effective Demand

Unemployment, Recession and Effective Demand

The Contributions of Marx, Keynes and Kalecki

Claudio Sardoni

In the midst of the current world economic crisis, many claim there is a necessity to return to the Marxian and Keynesian traditions in order to better understand the dynamics of market economies. This book is an important step in that direction. It presents a critical examination of the foundations of macroeconomics as developed in the traditions of Marx, Keynes and Kalecki, which are contrasted with the current mainstream. Particular attention is given to the problem of market forms and their relevance for macroeconomics.

Chapter 5: Keynesian Underemployment Equilibria

Claudio Sardoni

Subjects: economics and finance, history of economic thought, post-keynesian economics


5.1 INTRODUCTION We saw in the previous chapter that, on some occasions, Keynes directly dealt with the problem of crises in a way that was not too dissimilar from Marx’s approach.1 However, Keynes’s main concern was not the analysis of crises.2 Keynes wanted to show that the economy may experience underemployment equilibria, that is to say situations in which the economy experiences unemployment of labour and underutilization of capacity, but where there is no significant market perturbation and no force at work pushing towards full employment of labour and capital. This is a fundamental difference between Keynes and Marx. Not only did Marx concentrate on crises and take little interest in equilibrium but, as we saw in Chapter 3, his analysis cannot be developed to provide a satisfactory explanation of rest states (equilibria) characterized by a persistent situation of underemployment of labour and capital. This chapter is devoted to examining how Keynes arrived at the conclusion that underemployment equilibria can exist. This is done by considering the microeconomic foundations of Keynes’s macroeconomics. The differences from Marx’s microfoundations emerge clearly. The chapter is organized as follows. Section 5.2 deals with Keynes’s position concerning the prevailing market form in which firms operate. It is argued that Keynes essentially based his analysis on the hypothesis of (Marshallian) perfect competition. Section 5.3 looks at Keynes’s microfoundations in the competitive context defined in the previous section. Section 5.4 takes into consideration the relation of the equilibrium conditions at the micro level to those...

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