ABSTRACT

In the previous chapters four versions of the neoclassical macro model were presented with a running critique. In this chapter I provide a synthesis of those critiques by focusing upon the neutrality of money and full employment. The discussion is more easily followed by referring to Table 8.1, which has a summary of the central features of the models. Summary of the characteristics of the neoclassical model https://www.niso.org/standards/z39-96/ns/oasis-exchange/table">

Category/model

1 False dichotomy

2 “Classical” with RBE

3 “Complete Keynesian”

4 Keynesian with WE

Commodity market

c = c(y)

i = i(r)

c = c(y,M*/p)

i = i(r)

c = c(y)

i = i(r)

c = c(y, q)

i = i(r, q)

Money market

Ms = M*

Md = vpy

Ms = M*

Md = vpy

+ f[M*/p]

Ms = M*

Md = vpy

+[h − jr]

Ms = M*

Md = vpy

+ M(r, q)

Automatic full employment?

No

Yes

No

Yes

Inconsistency i & s

RBE acts on c

Inconsistency i & s, liquidity trap

q acts on c, i and Md

Neutrality of money?

Yes

Yes

Yes

No

Comments

Logically invalid, WL & QT clash

Heuristic value only, no bonds, requires “outside” M*

Not to be confused with the model of the GTEIM

Requires M* and bonds to be “outside”

Notation

RBE – real balance effect.

WE – wealth effect.

WL – Walras’ Law.

GTEIM – General Theory of Employment, Interest and Money.