Pigou, Neisser, and Machlup on wage cuts. How great a gap between Keines and the pre-Keinesians?

Hansjörg Klausinger

History of Economic Ideas, 2003, vol. 11, issue 2, 53-73

Abstract: In a discussion with Haberler, Keynes defended his analysis of wage cuts as distinct and superior to that of the ‘classical economists’. This essay addresses the issue of this debate by proceeding in three steps. First, we single out the most important common elements of the pre- Keynesian analysis of wage cuts and use them for reconstructing a consistent model of a two-sector economy, consisting of wage- and non-wage-goods. Then, we draw on the contributions by Pigou, Neisser and Machlup to the contemporary wage cut debate and reXect on the extent to which they conform or diverge from the reconstructed model. Thereby, we identify the absence of the interest-rate mechanism as a vital shortcoming of the pre-Keynesian contributions that indeed constitutes a gap between Keynes’s analysis and that of the pre-Keynesian authors considered.

Date: 2003
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