ABSTRACT
When Jean-Paul Fitoussi and I wrote our book The Slump in Europe: Reconstructing Open-Economy Theory (1988) we drew upon three conceptual departures that, although some two decades old, had not been much exploited by the economics profession. One of those departures was firm-specific investment in employees, which had been introduced in my paper on wage dynamics (Phelps 1968) and a second was investing in customers, which had been introduced in a paper with Sidney Winter for the conference volume Microeconomic Foundations of Employment and Inflation Theory (Phelps 1970). Jean-Paul and I combined those novel elements with some monetary building blocks from Keynes and Mundell in order to construct our narratives about Europe’s deep slump. Subsequently I wondered whether the new elements would work to tell broadly similar stories – and perchance some new stories – without those monetary blocks and with nonmonetary ones in their place. From 1988 to 1992 I developed three nonmonetary models resting on the three elements, bringing them together in my book Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest and Assets (1994).
