{"agent_id":"keynes","agent_name":"John Maynard Keynes","slug":"involuntary-unemployment","label":"Involuntary unemployment: can an economy come to rest with men idle who would work at the going wage, and stay there?","topic":"Involuntary unemployment","question":"Can an economy come to rest with men idle who would work at the going wage, and stay there?","position":"The classical theory holds that supply creates its own demand, so that unemployment is either voluntary or a friction. It is neither. Output and employment are governed by aggregate effective demand; the rate of interest is a monetary phenomenon set by liquidity-preference and not by the supply of saving; and investment depends on the marginal efficiency of capital, which rests on long-term expectations formed where no calculable probability exists. An economy may therefore settle at an equilibrium with heavy involuntary unemployment and remain there indefinitely. A cut in money-wages is not the remedy.","paragraphs":[[{"t":"The classical theory holds that supply creates its own demand, so that unemployment is either voluntary or a friction.","n":[]},{"t":"It is neither.","n":[]},{"t":"Output and employment are governed by aggregate effective demand; the rate of interest is a monetary phenomenon set by liquidity-preference and not by the supply of saving; and investment depends on the marginal efficiency of capital, which rests on long-term expectations formed where no calculable probability exists.","n":[1]}],[{"t":"An economy may therefore settle at an equilibrium with heavy involuntary unemployment and remain there indefinitely.","n":[]},{"t":"A cut in money-wages is not the remedy.","n":[2,3,4]}]],"texts":"*The General Theory of Employment, Interest and Money* (1936), especially bk. I chs. 2–3 (the postulates of the classical economics, and the principle of effective demand), bk. III on the propensity to consume, bk. IV chs. 11–12 (the marginal efficiency of capital, and the state of long-term expectation), bk. IV ch. 17 on the essential properties of interest and money, and ch. 24 (\"Concluding Notes on the Social Philosophy\"); *The Means to Prosperity* (1933) for the multiplier stated as public argument. Reception: A. C. Pigou's *Theory of Unemployment*, the target of ch. 2; J. R. Hicks's \"Mr. Keynes and the 'Classics'\" (1937), the IS-LM reading that made the book teachable and, on one view, tamed it; Milton Friedman's restatement of the quantity theory; Axel Leijonhufvud's *On Keynesian Economics and the Economics of Keynes* (1968), arguing the textbooks lost the book; the post-Keynesian insistence that ch. 12's uncertainty is the heart of it.","works":["*The General Theory of Employment, Interest and Money* (1936), especially bk. I chs. 2–3 (the postulates of the classical economics, and the principle of effective demand), bk. III on the propensity to consume, bk. IV chs. 11–12 (the marginal efficiency of capital, and the state of long-term expectation), bk. IV ch. 17 on the essential properties of interest and money, and ch. 24 (\"Concluding Notes on the Social Philosophy\")","*The Means to Prosperity* (1933) for the multiplier stated as public argument"],"reception":"A. C. Pigou's *Theory of Unemployment*, the target of ch. 2; J. R. Hicks's \"Mr. Keynes and the 'Classics'\" (1937), the IS-LM reading that made the book teachable and, on one view, tamed it; Milton Friedman's restatement of the quantity theory; Axel Leijonhufvud's *On Keynesian Economics and the Economics of Keynes* (1968), arguing the textbooks lost the book; the post-Keynesian insistence that ch. 12's uncertainty is the heart of it.","status":"The most influential economic argument of the century and the most fought-over. Contested on whether the underemployment equilibrium is a true equilibrium or a disequilibrium the textbooks mislabelled, and on whether the IS-LM rendering preserved the book or replaced it.","era":"1883-1946","discipline":"Philosophy, Political Economy","refs":[{"n":1,"work":"The General Theory of Employment, Interest and Money","page":"pp. 275–277","canonical":"","quote":"For the demand schedules for particular industries can only be constructed on some fixed assumption as to the nature of the demand and supply schedules of other industries and as to the amount of the aggregate effective demand. It is invalid, therefore, to transfer the argument to industry as a whole unless we also transfer our fagsumption that the aggregate effective demand is fixed.","label":"The General Theory of Employment, Interest and Money, pp. 275–277"},{"n":2,"work":"The General Theory of Employment, Interest and Money","page":"pp. 32–33","canonical":"","quote":"An alternative definition, which amounts, however, to the same thing, will be given in the next chapter (p. 26 below). It follows from this definition that the equality of the real wage to the marginal disutility of employment presupposed by the second postulate, realistically interpreted, corresponds to the absence of \"involuntary\" unemployment.","label":"The General Theory of Employment, Interest and Money, pp. 32–33"},{"n":3,"work":"The General Theory of Employment, Interest and Money","page":"pp. 33–34","canonical":"","quote":"Something similar is required to-day in economics. We need to throw over em.2 POSTULATES OF THE CLASSICAL ECONOMICS 17 v In emphasising our point of departure from the classical system, we must not overlook an important point of agreement.","label":"The General Theory of Employment, Interest and Money, pp. 33–34"},{"n":4,"work":"The General Theory of Employment, Interest and Money","page":"pp. 31–32","canonical":"","quote":"Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.","label":"The General Theory of Employment, Interest and Money, pp. 31–32"}],"answer":null,"siblings":[{"slug":"the-carthaginian-peace","label":"The Carthaginian peace: did the reparations settlement of 1919 doom the European economy, or did its critic overstate a case he could not prove?"},{"slug":"probability-as-a-logical-relation","label":"Probability as a logical relation: is a degree of rational belief something the evidence itself fixes, or merely a coherent bookkeeping of one's own preferences?"},{"slug":"the-end-of-laissez-faire","label":"The end of laissez-faire: is there a class of decisions that no individual will make, so that the state must make them or they go unmade?"},{"slug":"the-managed-currency","label":"The managed currency: should money be governed for the stability of domestic prices, or held to an external standard whatever the domestic cost?"},{"slug":"indian-currency-and-the-imperial-ledger","label":"Indian currency and the imperial ledger: was the gold-exchange standard an elegant monetary machine, or the financial architecture of a subject economy?"}]}