I established in my last post that Keynes's objection to classical economics had something to do with a labor supply curve that was horizontal at least in part. It is now beginning to dawn on me that Keynes might have been under the impression that the classical economists believed that the supply curve for labor was horizontal. How else can we make sense of not only quantity of labor employed falling but also all of the unemployed now refusing to work whenever the real wage fell slightly?
I know it may sound crazy. Certainly, someone must have noticed such an unusual unstated assumption by now. Perhaps, people were just reading into Keynes what they expected to see all along. Maybe, the classical economists, in Keynes's view, did see labor as being totally homogeneous. As Keynes summarized their teaching, "the real wage of an employed person is that which is just sufficient (in the estimation of the employed persons themselves) to induce the volume of labour actually employed to be forthcoming" (The General Theory of Employment, Interest, and Money, 5, emphasis added). The sentence can, of course, be read to be explaining the familiar upward-sloping supply curve, but couldn't it be referring to a horizontal curve? If, in this model, all of the working class are the same, then wouldn't they agree to work for the same wage? Paradoxically, Keynes himself is credited with introducing a labor supply curve that is horizontal at the real wage. In a curious passage, Keynesian economist Victoria Chick wrote, "Keynes is said to have supplanted the Classical upward-sloping supply curve with a curve having a horizontal portion at or above the wage which would clear the 'Classical' market" (Macroeconomics After Keynes, Cambridge, Massachusetts: MIT Press, 1983, 140). It is, however, dubious that this is Keynes's view. Keynes might have said that the curve was horizontal at the nominal wage, but his problem with the "classical" economists, from what I gather, is that they failed to predict that the curve would be vertical over a range of real wages. Remember. He said that empirically, a fall in real wages would not cause employment to fall. Either, he is saying that the supply curve looks like a staircase, which is totally plausible by the way, or he is saying that there was usually unemployment; so a fall in real wages would actually cause more people to be hired than were before the price inflation occurred. By unemployment, I mean the kind that even Keynes would call involuntary unemployment.
Classical economics, according to Keynes, could be reconciled with voluntary unemployment and a supply curve that was horizontal at the real wage. I think that's why I was having problems with Keynes in the last post. He must have believed that classical economists all acknowledged some voluntary unemployment, a tacit or explicit agreement among the whole of the laboring class not to work for less than a certain wage. The classical economists then were saying that a curve based on marginal disutility would obviously be horizontal at some minimum wage. Even if they were, Keynes seemed to think that that minimum wage must be above the wage that would clear the market. I don't know how else he can say that any decline in laborers willing to work implies that all those unemployed are also no longer willing (See last post for what I'm referring to).
Maybe, Keynes was correct about what the classical economists taught, but I have heard otherwise. Also, I'm just skeptical about them all teaching what he seemed to have accused them of teaching. People will do some labor literally for free; so, if anything, the supply curve is horizontal, but it's horizontal at a wage of zero, not at some wage that would cause a surplus of labor.
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