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Unemployment as a Disequilibrium Phenomenon: the economics of Keynes and how to go ahead from Patinkin, Leijonhufvud and Hicks

Author

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  • Mario Amendola

    (Dipartimento di Scienze Sociali ed Economiche - UNIROMA - Università degli Studi di Roma "La Sapienza" = Sapienza University [Rome])

  • Jean-Luc Gaffard

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

Keynes' theory can be interpreted as dealing with unemployment as a disequilibrium phenomenon in an essentially dynamic context. In this perspective, it is much more important to explain why unemployment changes than to identify a presumed level of equilibrium for this variable. Patinkin, an artisan of the so-called neo-classical synthesis, had the same intuition when maintaining that price and wage flexibility is not a cure for unemployment, and hence there is no unemployment equilibrium. However, two essential aspects of a thorough sequential analysis are missing in both authors: co-ordination failures and time. Leijonhufvud takes co-ordination failures due to imperfect knowledge into account by focussing on financial markets incapable of providing for the consistency of long-term production and consumption plans. The time dimension in the real side of the economy is introduced by Hicks who maintains that productive capacity must be built up before being used, and hence, by fossilising past events, appears as a factor of propagation of disequilibria. Coupling this time dimension of production with the imperfect knowledge that engenders co-ordination issues allows building-up a true dynamic analysis, which appears as the prolongation or the complement of Keynes' analysis. Within such an analytical framework, it becomes evident, that a fall not only in money wages but also in real wages, far from re-establishing full employment, is a source of global instability and threats the viability of the economy. And above all, it becomes evident that understanding the role of money and financial behaviours is essential for explaining the ongoing crisis as the previous ones.

Suggested Citation

  • Mario Amendola & Jean-Luc Gaffard, 2010. "Unemployment as a Disequilibrium Phenomenon: the economics of Keynes and how to go ahead from Patinkin, Leijonhufvud and Hicks," SciencePo Working papers Main hal-01069452, HAL.
  • Handle: RePEc:hal:spmain:hal-01069452
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-01069452
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    References listed on IDEAS

    as
    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, December.
    2. Mario Amendola, 1991. "Liquidity, Flexibility and Processes of Economic Change," International Economic Association Series, in: Lionel W. McKenzie & Stefano Zamagni (ed.), Value and Capital: Fifty Years Later, chapter 12, pages 333-351, Palgrave Macmillan.
    3. Hicks, John, 1977. "Economic Perspectives: Further Essays on Money and Growth," OUP Catalogue, Oxford University Press, number 9780198284079.
    4. Amendola, Mario & Gaffard, Jean-Luc, 1998. "Out of Equilibrium," OUP Catalogue, Oxford University Press, number 9780198293804.
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    Cited by:

    1. Jean-Luc Gaffard & Mauro Napoletano, 2018. "Hétérogénéité des agents, interconnexions financières et politique monétaire : une approche non conventionnelle," Revue française d'économie, Presses de Sciences-Po, vol. 0(3), pages 201-231.
    2. Jean-Luc Gaffard & Mauro Napoletano, 2018. "Market disequilibrium, monetary policy, and financial markets: insights from new tools," LEM Papers Series 2018/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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    More about this item

    Keywords

    co-ordination; disequilibrium; money; production; time; unemployment; wage;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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