Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

19 Pages Posted: 16 Aug 2012 Last revised: 19 Aug 2015

Egmont Kakarot-Handtke

University of Stuttgart - Institute of Economics and Law

Date Written: August 16, 2012

Abstract

Keynes had many plausible things to say about unemployment and its causes. His ‘mercurial mind’, though, relied on intuition which means that he could not strictly prove his hypotheses. This explains why Keynes's ideas immediately invited bastardizations. One of them, the Phillips curve synthesis, turned out to be fatal. This paper identifies Keynes's undifferentiated employment function as sore spot. It is replaced by the structural employment function that supersedes also the bastard Phillips curve. It will be demonstrated in a formal rigorous way why there is no trade-off between price inflation and unemployment. The structural Phillips curve predicts stagflation.

Keywords: new framework of concepts, structure-centric, axiom set, Say’s regime, Keynes’s regime, market clearing, full employment, product price flexibility, intertemporal budget balancing, multiplier, trade-off, price inflation, wage inflation

JEL Classification: E12, E24

Suggested Citation

Kakarot-Handtke, Egmont, Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster (August 16, 2012). Available at SSRN: https://ssrn.com/abstract=2130421 or http://dx.doi.org/10.2139/ssrn.2130421

Egmont Kakarot-Handtke (Contact Author)

University of Stuttgart - Institute of Economics and Law ( email )

Keplerstrasse 17
Stuttgart
Germany

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