Chapter ǻ: Ļe Keynesian Heritage in Economics ȀȄȈthan disequilibrium is inherent in the logic of a market economy. When-
ever, therefore, markets are quite generally and conspicuously failing to
clear, some essentially exogenous disturbance must have occurred, a dis-
turbance pervasive enough to resist quick, automatic correction. In a
depression, what bars people from accomplishing all the exchanges of
each other’s goods and services that they desire is a deficient real quan-
tity of money. Such a deficiency could arise either from shrinkage of the
money supply or from its failure to keep pace with the demand for money
associated with real economic growth. Even then, the real money sup-
ply could remain adequate if people marked down their prices and wages
sufficiently and promptly. Price and wage “stickiness” is, however, sensible
from the standpoint of individual decisionmakers, even though that stick-
iness, in the face of monetary disturbances, has painful macroeconomic
consequences. (An adaptation of this account, drawing on an analogy
between levels and trends of prices, can handle the case of “stagflation.” It
is unnecessary to assume, as simplistic Keynesian analysis does, that infla-
tion and depression are exact opposites associated respectively with too
much and too little aggregate demand.)
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Robert Clower (ȀȈȅȄ) and Axel Leijonhufvud (ȀȈȅȇ), and other writers
in their tradition, have interpreted Keynes as espousing a good part of the
theory just sketched out. (Ļey ignored its earlier expositors.) Ļey empha-
sise such concepts as the absence of the Walrasian auctioneer, incom-
plete and costly and imperfect information, false price signals, sluggish or
poorly coordinated price adjustments, quantity adjustments besides price
adjustments, the dual-decision process (i.e., people’s decisions about try-
ing to buy or sell in some markets depend on whether or not they succeed
in carrying out desired transactions in other markets), and the “income-
constrained process” (the infectiousness of failure or success in accom-
plishing transactions). In brief, information gaps and other frictions bar
the swift, coordinated, and appropriate readjustment of interdependent
yet separately decided prices. In the face of pervasive disturbances, notably
monetary disturbances, the price system cannot maintain or readily restore
equilibrium.
Clower and Leijonhufvud admit that Keynes did not explicitly state
what they suppose he meant. Ļey offer excuses for him. In trying to break
free from orthodoxy, he was handicapped by unavailability of the required