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Claude Gnos
“Circuit theory and the employment issue”
My presentation is meant to be part of a research program
the objective of which is to examine just how relevant
and effective Keynes’s theory of a ‘monetary
economy of production’ – which Post Keynesians
and Circuitists currently set against the various strands
of standard Keynesian economics – is when it comes
to analyzing and combating the causes of present-day unemployment.
The first section will focus on methodology. According
to the common interpretation underlying standard Keynesian
economics, the principle of effective demand consists
in a process of adjusting aggregate supply and demand
by means of variations in quantities instead of prices
and wages. Hence the role assigned in the corresponding
models to price and wage fixity or, at least, to their
stickiness: it is argued that a decrease in nominal demand
would have no substantial effect on the level of employment,
and thence on the level of output, if prices and wages
could adjust rapidly enough. This interpretation stands
in sharp contrast to Keynes’s theory that neglects
market imperfections. As Keynes puts it, ‘The essential
character of the argument is precisely the same whether
or not money-wages, etc., are liable to change’
(Keynes, 1936, p. 27). This is so because the principle
of effective demand determines the amount of employment
in its own way, apart from market processes and in disagreement
with the conventional theories of value and distribution
(cf. Rotheim, 1998: ‘At the heart of Keynes’s
economics is a theoretical critique of both the theories
of value and distribution underlying the traditional macroeconomic
programme – the language of markets is theoretically
invalid at the macroeconomic level’). In this view,
and contrary to what standard Keynesians argue, demand
deficiency deserves careful attention by itself, irrespective
of market imperfections. What then is the framework underpinning
Keynes’s theory of employment? I shall argue that
the principle of effective demand stands for a macroeconomic
constraint grounded on the circular flow of money incomes
depicted by Italian and French Circuitists (Graziani,
Schmitt and Parguez).
In the second section, I shall consider possible sources
of demand deficiency. According to Keynes, the proportion
in which the income generated by production is spent on
consumption and investment goods is crucial, and so the
level of aggregate demand may be (and usually is) by itself
an obstacle to full employment. Thence the need for State
intervention to sustain effective demand while the free
play of supply and demand should be left to determine
the other economic variables (Keynes, 1936, pp. 372-384).
The contrast with standard Keynesian economics is clear-cut
once more: according to the latter (especially the New
Keynesian approach), government demand management policies
are needed owing to market imperfections. Post Keynesians
naturally endorse Keynes’s original argument which
they usually link to uncertainty and the existence of
money, holding money (i.e. liquidity) instead of spending
it on goods being a means to cope with uncertainty. As
Davidson (2002) puts it: ‘The unemployment problem
is basically always a liquidity problem’. With reference
to Schmitt (1984, 1996), I shall also emphasize that the
reference to the circular flow of money incomes uncovers
an additional source of demand deficiency which is connected
with capital accumulation, and so sketches a new line
of research. |
