Gt and Microfoundations

[Paul Davidson <pdavidson@xxxxxxx>]

Jochen Hartwig has incorrectly interpreted what  I wrote in PKMT, p. 177-193.

The Post Keynesian view is consistent with Darity/Horn.

perhaps the easiest way is to refer Jochen to my May 1998 ECONOMIC JOURNAL
article entitled "Post Keynesian Employment Analysis and The Macroeconomics
of OECD Unemployment".  The first paragraph of this article [ p. 817] states:

"The Post Keynesian (hereafter PK) theory of employment is derived from
Keynes' chapter 3 (1936a)  "The Principle of Effective Demand" where
labour-hire demand is derived from an effective demand point determined in
the product markets.  Tobin (1992, p. 392) states this chapter is "the most
important innovation of the General Theory". The effective demand principle
means that there is an "employment function" (Keynes, 1936a, ch. 20)
relating alternate labour-hire decisions to alternate points of effective
demand. There is no aggregate demand for labour schedule with the real wage
as the independent variable (Davidson, 1983). "

Just so there is no mistake ,again on p. 825 I state:


"There is no aggregate demand for labour function with the real wage as the
independent variable. Neither a MPL function nor a MRPL concept (obtained
by multiplying MPL by a scalar inversely related to Lerner's [1933-4]
degree of monopoly)  nor any other productivity based labour-demand
analysis (e.g., LNJ, 1994, p. 341; BK, 1997, p. 55) can provide an
aggregate demand curve for labour. Any productivity-based function
purporting to relate the real wage paid by employers to labour-hire
decisions must be interpreted as,  in Patinkin's (1965, pp.391-2)
terminology, "a market equilibrium curve" of labour-hire (hereafter MECL).
The MECL specifies the real wage outcome associated with alternative
equilibrium employment levels where both the equilibrium real wage paid and
workers-hired are determined by the point of effective demand in the
product markets."

What my analysis in PKMT pp. 177-193  (pages cited by Jochen) demonstrates
is that one can derive an aggregate demand curve for labor in a money wages
vs. employment quadrant from the  locus of effective demand points one
would get is one hypothesized a change in the money wage rate -- given all
other propensities, etc (i.e., an analysis Keynes gives verbally in Chapter
19 of the GT.

Following Weintraub, I then show, on these pages, that if one presumes a
tradition labor supply function in terms of real wages vs. employment, one
can translate this labor supply into a supply curve in money wage vs.
employment quadrant -- using the real wage determined by the locus of
effective demand points.

This allows one to see why flexible MONEY wages and prices per se will not
automatically clear the labor market -- even when price and wages are
instantaneously flexible.  (This is what I asked Per to read to understand
why wage flexibility per se does not automatically clear the labor market.)

Paul
Paul Davidson
Holly Chair of Excellence in Political Economy
Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
Economics Department -- 523 SMC
University of Tennessee
Knoxville, Tennessee 37996-0550
email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
http://econ.bus.utk.edu/Davidson.html