ABSTRACT

The modern classical economists and the modern Ricardians find themselves on opposite sides of the moon on the question of what concept of equilibrium should be employed in economic theory. The forces associated with a uniform rate of profits are held by the Ricardians to be the permanent or equilibrating forces which overshadow factors such as expectations or supply and demand forces which play a transitory role. The modern Ricardian views on equilibrium will be compared not only with those of the modern classical school, but also with those of Keynes. Statements about relationships between variables in the economic system should be confined to the relationships holding under the assumption of a uniform rate of profits. In the modern Ricardian approach, the combination of a uniform rate of profits with Keynes’s principle of effective demand provides a centre of gravitation that is not necessarily one of full employment.