The Production Sector

The preceding chapter has discussed the reasons for our proposed reformulation of the Keynesian macroeconomic model and its departures from the modern classical and new Keynesian ones. This chapter expands on the aspects relevant to the Keynesian analyses of production and employment and the specification of the commodity market. It starts with our preferred analytical division of time into the short term and the long term and provides their analyses for the firm. Briefly, the long term is the set of short terms up to the firm's horizon. The firm optimizes over the short terms making up the long term and determines its intended or planned “scale of operations” — a code expression for the intended levels and types of labor and capital, production and pricing, financing arrangements, etc. Since intertemporal optimization determines, from the list of available types of equipment and labor, the particular types of physical capital and labor that will be used by the firm, the technology thus implemented specifies the firm's long-term and short-term production functions, both of which, as discussed in Chapters 1 and 2 and again later in this chapter, are endogenous…