ABSTRACT
The inheritors of what Keynes called ‘classical’ economic theory emphasise the importance of real wage movements in generating, and subsequently correcting, fluctuations in aggregate employment levels in advanced capitalist countries. This analysis is derived by considering the behaviour of atomistic agents maximising objective functions in the face of resource constraints. The analysis assumes that these rational agents operate in a rational marketplace where relative price movements ensure the maintenance of an equality between the demands and supplies of commodities. Thus in terms of the labour market this theory supposes that the real wage rate is the main determinant of employment levels.
