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.