ABSTRACT
During the first half of the 1930s, many economists were engaged in a debate on the possibility of having firms or industries in a position of equilibrium characterised by the existence of unused productive capacity. Although this was a microeconomic issue, it may seem strange that a debate on the possibility of equilibria with industries producing less than their potential output was not connected to the contemporary development of Keynes’ principle of effective demand and his notion of macroeconomic underemployment equilibria. This may seem even stranger in view of the fact that some of the protagonists of the microeconomic discussion were at the same time deeply involved in the process that led to The General Theory. Keynes, however, did not show any serious interest in the debate on excess capacity, and likewise none of the participants in that debate tried to establish a connection with the new theoretical developments in macroeconomics.
