Re: German real wages in the Depression

[Jim Devine <jdevine03@xxxxxxxxx>]

Gil writes: 
> It is true that a *certain form* of unemployment, called "Keynesian" or (by
> Keynes, for example) "involuntary," corresponds definitionally to a
> situation in which real wages exceed their market-clearing levels (though
> not all forms are due to this--e.g., unemployment due to job search).  

the idea that unemployment arises due to wages exceeding the
market-clearing level is called "classical" unemployment, though it's
been appropriated by Mankiw and other so-called "new Keynesians."
Keynes' theory of unemployment (cf., GENERAL THEORY, ch. 19) argues
that if real wages fall during a severe recession (the classical and
new Keynesian prescription), that makes matters _worse_ by hurting
aggregate demand for output and thus, labor.

> But
> there is less tautology here than meets the eye.  Edmond Malinvaud--an
> economist--has demonstrated formally that in a situation of
> downwardly-inflexible nominal wages and output prices, reducing nominal
> wages by itself *increases* rather than *decreases* unemployment, by
> disproportionately reducing aggregate demand for output and thus firms'
> demand for labor.  

Malinvaud's theory is more Keynesian than the new Keynesians are,
because (like Patinkin and others before him) he deals with
demand-constrained labor-power markets, in which Say's Law has been
rejected and where (even under atomistic competition) the real wage
does not have to equal the marginal product of labor.

(M's theory is part of the perhaps-misguided attempt by Patinkin,
Clower, Leijonhufvud, Barro, Grossman _et al_ to introduce Keynesian
ideas into the Walrasian general equilibrium theory. This effort
somehow disappeared from the map when the idea of rational
expectations came along, so that Barro (for one) became really right
wing. Perhaps mixing Keynes and Walras are like mixing oil and water,
so that people like Barro went with the water rather than choosing the
oil. Maybe not: I think that introducing the idea of
demand-constrained labor markets would improve labor economics
markedly.)

-- 
Jim Devine
"Segui il tuo corso, e lascia dir le genti." (Go your own way
and let people talk.) -- Karl, paraphrasing Dante