Bill Mitchell — Keynes and the Classics – Part 2

I am departing from regular practice today by taking advantage of a lull in the news reports to advance the draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We are behind schedule at present and so I am concentrating attention on progressing the project to completion. I am also currently avoiding any commentary about the US fiscal cliff resolution farce – I thought Andy Borowitz (January 3, 2012) –
Washington celebrates solving totally unnecessary crisis they created – was about right. Hysterical if it wasn’t so tragic. America – we are all laughing at you – while laughing at our own stupidity as well given the behaviour of our own governments (Europe, UK, Australia etc). Anyway, comments are always welcome. 

Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

I am currently working on Chapter 11 which opens like this:

Chapter 11
11.1 Introduction and Aims
In Chapter 10, we discussed issues relating to labour market measurement. In this Chapter we will focus on theoretical concepts that underpin the measurement of economic activity in the labour market and the broader economy.
The Chapter has five main aims:
▪ To explain why mass unemployment arises and how it can be resolved.
▪ To develop the concept of full employment.
▪ To consider the relationship between unemployment and inflation – the so-called Phillips Curve.
▪ To develop a buffer stock framework for macroeconomic management (full employment and price stability) and compare and contrast the use of unemployment and employment as buffer stocks in this context.
▪ To more fully explore the concept of a Job Guarantee (employment buffer stock) approach to macroeconomic management.

NOTE:
At present, I am outlining the Classical theory of employment determination and output – which is the basis of their denial of involuntary unemployment. In the section last week – Keynes and the Classics – Part 1 – I explained how the Classical system conceives of labour supply and demand and how these come together to define the equilibrium level of the real wage and employment.

This equilibrium defines the Classical concept of full employment.

Today, we see how unemployment can occur in this model and also explain how the theory of employment leads to a theory of aggregate supply. Then we consider why aggregate demand can never be deficient in this system.

NEW TEXT STARTS TODAY

11.7 Unemployment in the Classical Labour Market

Bill Mitchell — billy blog
Keynes and the Classics – Part 2
Bill Mitchell