| Abstract: | Though there is consensus among economists about microeconomic theory, neither the Keynesian nor the Monetarist theory of macroeconomics has attracted a consensus, presumably because neither is compelling enough to persuade the skeptical. A new approach to the subject that combines insights from each of the familiar schools with considerations that both schools have overlooked is accordingly offered here. This argument accepts the evidence that involuntary unemployment and depressions sometimes occur and thus rejects the finding of the new classical or equilibrium macroeconomics, that markets always clear and that all individuals and firms are in equilibrium. It also rejects the Keynesian assumption of wages or prices arbitrarily fixed at disequilibrium levels, and insists that any adequate theory must show what interests are served by the existence of involuntary unemployment. The theory offered here shows that an institutional or organizational arrangement common in all societies which have experienced widespread unemployment and deep recessions entails that many firms and individuals will be in disequilibrium. This disequilibrium becomes more severe when there is unexpected deflation or disinflation. The disequilibrium is of precisely the type commonplace in recessions and entails involuntary unemployment. The theory also shows how groups of individuals and firms can gain from practices that entail involuntary unemployment and underutilization of resources for others. |
