ABSTRACT
We turn now to what textbook macroeconomics ought to deal with-the working of a
demand-determined system-which it sometimes does. But only sometimes; a lot of
effort is wasted trying to make it seem that macroeconomics is compatible with
microeconomics. But, if our argument is correct, they cannot be. The traditional theory of
supply and demand (in its practical or Marshallian, not its esoteric, ‘general equilibrium’,
version) describes the resource-constrained craft economy; macro-economics, the
demand-determined economy of modern industry. Of course, special cases can be found
where these two do fit together, and special assumptions can be made to try and smooth over discrepancies. Yet the difference is fundamental: in one case, output and
employment are fixed, but prices and wages are variable, while in the other it is just the opposite-prices and money wages are fixed, while output and employment are variable. That is a difference that will be hard to smooth over!
