Keynes Seminar 29 October 2008 Mark Hayes Robinson College, Cambridge General Theory Reading Group 2: Two Theories of Employment © PKSG 2008

Involuntary Unemployment: Defined in Pigou’s Terms ‘Men are involuntarily unemployed if, in the event of a small rise in the price of wage- goods relatively to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment’ (GT, p. 15)

Reductio ad absurdum ‘all those now unemployed though willing to work will withdraw the offer of their labour in the event of even a small rise in the cost of living’ (G.T. 13).

Five Propositions Equilibrium Competition Money Expectation Liquidity

Keynes on the Keynesian Cross ‘For other economists, I find, lay the whole emphasis, and find the whole explanation in the differences between effective demand and income; and they are so convinced that this is the right course that they do not notice that in my treatment this is not so’. [ CW XIV, p. 181]

Source: Mankiw, Macroeconomics

The employment function N* = F ( D* )

Gross output on day t Income on day t Effective demand on day t

Gross output on day t Income on day t Effective demand on day t

Next time: Claudio Sardoni University of Rome ‘La Sapienza’ Keynes, Marx and The General Theory