ABSTRACT

[M]ost of the debate around the legitimacy of Keynes’ notion of ‘underemployment equilibrium’ was misplaced. It is the notion of a ‘full employment equilibrium’ which is an artificial creation, the consequence of the artificial assumption of constant returns to scale in all industries and over the whole range of outputs which implies infinite divisibility of everything…. [M]ost of the voluminous literature concerning the reconciliation of Keynesian analysis with Walrasian general equilibrium – in terms of ‘disequilibrium’ economics, inverted velocities of price and quantity adjustments, absence of the ‘heavenly auctioneer’, etc. – is beside the point. The two kinds of theory cannot be reconciled, simply because one concerns a purely artificial world of perfect competition, etc., whilst the other attempts to generalise about the real world.