ABSTRACT
Lange Oskar Lange’s conception powerfully illustrates how little unanimity on the meaning of the involuntary unemployment existed in the post-war period. At the beginning of his Cowles Commission monograph, Price Flexibility and Employment (1944), Lange devotes a lengthy footnote to the subject of involuntary unemployment:
Underemployment, having been defined by us as excess supply of a factor production, implies thus the existence of excess demand somewhere else in the economy. This treatment of underemployment differs from the ‘involuntary unemployment’ as defined by Lord Keynes. ‘Involuntary unemployment’ is not an excess supply of labour but an equilibrium position obtained by intersection of a demand and a supply curve, the supply of labour curve, however, being infinitely elastic over a wide range with respect to money wages, the point of intersection being to the left of the region where elasticity of supply of labour with respect to money wages becomes finite. Thus ‘involuntary unemployment’ in the Keynesian sense, does not imply excess demand for cash balances, or for other goods, or for both. Demand and supply for cash balances as well as for all other goods are supposed to be in equilibrium in the Keynesian theory. The difference is shown in the adjoining diagram [see below Figure 9.1]. D is the demand curve and S is the supply curve of the factor. In our treatment ‘underemployment’ consist in the excess supply AB (PQ), while Lord Keynes considers the line CQS as the supply curve, P as an equilibrium point and PQ (AB) as involuntary unemployment.
