University of Guelph Department of Economics and Finance Working Paper No. 2013-07
60 Pages Posted: 22 Aug 2013
Date Written: July 16, 2013
Chapter 2 is one of the most important chapters in the General Theory. Not only does it set out Keynes’ disagreements with key elements of the classical model, it lays out his own model of the working of the labour market, which underlies the analysis in the remainder of the General Theory. The issue of how labour’s response to a change in its real wage differs depending on whether the change is driven by a change in the nominal wage or in the price of consumer goods plays a key part in the way Keynes’ theoretical model is developed here. This chapter introduces Keynes’ concept of involuntary unemployment and sets out his argument about the causal relation between the real wage and the level of unemployment, and about the consequent cyclicality of the real wage. Chapter 2 also includes Keynes’ discussion of Say’s Law.
Keywords: Keynes, General Theory, Keynesian Economics, Classical Economics, Involuntary Unemployment, Real Wages, Labour Market Adjustment, Say’s Law
JEL Classification: B10, B12, B13, B22, B31, E12, N12, N14
Suggested Citation: Suggested Citation
Ferguson, Brian S., Lectures on John Maynard Keynes’ General Theory of Employment, Interest and Money (2): Chapter 2, 'The Postulates of the Classical Economics' (July 16, 2013). University of Guelph Department of Economics and Finance Working Paper No. 2013-07. Available at SSRN: https://ssrn.com/abstract=2313435 or http://dx.doi.org/10.2139/ssrn.2313435