ABSTRACT
In this • we shall be concerned not simply with the ι . of the price level but with the existence of and working
of forces that may govern the movement of the price level over time. The analysis of price movements in disequilibrium in a ι employment model can be inferred largely from Chapter II. The ι for this is simply that the dichotomy between the real and : aspects of the economy that is implied by the neo-classical model results in a close analogy between the analysis of price movements in the case when production is fixed and when it is variable. We shall, therefore, concentrate here on the theories of price level change that the Keynesian analysis inspired. In the early days of Keynesian theory it was said that the analytical structure of the General Theory was
and under-employed economy. Neo-classical economics on this view become the economics of prosperity and the General Theory the economics of depression.1 A number of the latter Keynesians did not accept this implication and instead argued that the principles of the General Theory were quite general in the sense that they could also be used to analyse the behaviour of the general price level in an inflationary situation. To put their case over simply, depression was a situation in which at any higher level of t
economic headache lay in the manipulation of the level of demand!* It is worth recalling that Keynes himself at one time appeared to
to the idea that the apparatus of the General Theory was
we shall examine the distinction between cost and demand inflation in the context of a rather wider set of relationships than the simple Keynesian model of the last chapter provides us with. For the present, however, it is worth discussing these two approaches in terms of the simple Keynesian model, treating each one separately. We begin, therefore, with some discussion of the effects of a shift in the wage unit on the general level of prices.
