ABSTRACT
So far, our investigation has focused on the ways in which monetary disequilibria create macroeconomic problems by disrupting the microeconomic coordination taking place through the pricing process. The contention has been that the effects of such disequilibria ‘spill over’ from money to the relative prices of individual goods and services, and in so doing, break the link between those prices and the underlying variables of preferences, knowledge, and scarcity. In this chapter, we shift this focus slightly to explore how the sort of pervasive idleness of labor and capital associated with macroeconomic disorder might originate from non-monetary sources. The line of inquiry here will not be real business cycle theory, but rather the apparently more mundane argument that unemployment results from labor being priced out of the market. If one group of workers is unemployed in such a fashion, it can lead to more pervasive unemployment through the reversal of Say’s Law. We will also explore the relationship between this mispricing of labor perspective and the monetary disequilibrium explanations we have laid out in previous chapters.
