The Great Depression of the 1930s with its dramatic unemployment rates was one of the most striking economic events of the past century. It shook economists' beliefs in the existence of self-adjusting forces and prompted Keynes to write his masterwork, The General Theory of Employment, Interest and Money.
Involuntary unemployment was the central concept of Keynes' book. However, after having been considered the sine qua non of economics for decades, it has gradually disappeared from textbooks and research. This book recounts and ponders this demise, asking whether the abandonment of the concept of involuntary unemployment is the manifestation of some inner defect of recent economic theory or is rather due to some intrinsic weakness of the concept itself, which makes it of little use when it comes to economic theorising.
In order to disentangle these issues, the author critically reviews the different explanations of involuntary unemployment that have been offered from Keynes up to the end of the 1980s. After consideringThe General Theory, the author studies the works of pioneering macroeconomists such as Hicks, Modigliani, Lange, Leontief, Tobin, Klein and Hansen. An examination of the 're-appraisal of Keynes' and of the so-called disequilibrium school is followed by a discussion of Friedman's and Lucas' anti-Keynesian attack. The final part of the book investigates a series of models purporting to revive the Keynesian project, namely implicit contract, efficiency wages, insider-outsider, coordination failures, and imperfect competition.
'Involuntary Unemployment will to the teacher constitute a valuable text in any course on theories of unemployment. To the historian of ideas, it displays a stimulating disregard for the clichés of intellectual (pseudo) history. To the general economist, it makes for a sprightly performance, full of position and thought'. - William Coleman, Australian National University, Economic Record
1. Introduction Part 1: Conceptual Prerequisites 2. Defining Involuntary Unemployment 3. From Labour Rationing to (Involuntary) Unemployment 4. Trade Organisation Part 2: Involuntary Unemployment in Keynes' General Theory 5. Keynes' Programme. A Reconstruction 6. Involuntary Unemployment in Keynes' General Theory Part 3: IS-LM Macroeconomics 7. Hicks 8. IS-LM à la Modigliani 9. Lange, Leontief, Tobin, Klein and Hansen 10. Involuntary Unemployment in Macroeconomic Textbooks Part 4: Reconstructing Keynesian Economics: the Disequilibrium Approach 11. The Forerunners: Patinkin, Clower, Leijonhufvud 12. The Second Generation: Barro and Grossman, Dréze, Benassy and Malinvaud Part 5: The Anti-Keynesian Offensive 13. Friedman 14. Lucas Part 6: The New Keynesian Counter-Attack 15. Implicit Contract Theory 16. Efficiency Wages Models 17. Insiders-Outsiders Theory 18. Coordination Failure Models 19. Imperfectly Competitive General Equilibrium Model 20. Epilogue