ABSTRACT
We intend in this essay to discuss at some length the Keynesian theory of wages. We are limiting ourselves to the consideration of a closed economy, for this is the only case to which the Keynesian argument fully applies. To take an extreme example, let us imagine an economy which exports all its produce and imports all consumption goods. It is obvious that in such an economy a reduction in money wages is equivalent to one in real wages, and increases output and employment (but not necessarily the real wage bill).
