Keynes and the Labor Market

Given that Keynes was one of those “orthodox members of the Cambridge School” to which he referred in his introduction to the Handbook series, it should come as no surprise that he held views on labor markets and unemployment during his career that reflect the Marshallian tradition laid out above. Keynes’s lecture notes prior to World War I, we will see, make it clear that early on he indeed did hold what is best described as a sophisticated and realistic Marshallian view on value and distribution theory. But Keynes’s attitude toward the orthodox treatment of unemployment changed significantly as the twenties progressed. It will be our task here to show that Keynes’s pre-General Theory writings provide evidence that the types of explanations of involuntary unemployment now being proffered as New Keynesian economics would not have been novel to Keynes even before World War I, much less in the thirties. Moreover, his departure from the traditional view of the labor market as self-adjusting in some sense begins in the twenties. Further it will be argued that, though of interest in themselves, these departures remained no more than elaborate qualifications of the classical theory he would eventually reject in the General Theory. Thus the source for his own departure from classicism must be sought elsewhere.