ABSTRACT
John Maynard Keynes argued that the USA and global financial systems had become so fragile and over-leveraged that the serious deflation of the early 1930s had triggered a financial market collapse and global depression. Deflation under conditions of financial fragility is especially disastrous. There were a number of important “facts” that Keynes believed the classicists got wrong about the labor demand curve. The derivation of Keynes’s labor supply function is clearly based on an anti-classical methodology and reflects a methodological innovation. Keynes offered two reasons as to why this assumption should have been suspect even to classical economists. The first reason has to do with the nature of competition, assumed by classical theory to always be fierce or “perfect.” The second reason to reject the classical argument that real and money wages move in the same direction is that its assumptions are inconsistent.
