The Economics Book

WAR AND DEPRESSIONS 161

Classical resurgence
Keynesianism became discredited
in the 1970s as European
economies ran into trouble.
Classical ideas about
unemployment were revived by
the so-called “new classical”
school of economists, who once
again denied the possibility
of persistent involuntary
unemployment. The US economist
Robert Lucas (1937– ) was one
of the leaders of the assault on
Keynesianism. When he was
asked how he would describe
an accountant who was driving
a taxi because he could not find a
job as an accountant, Lucas
replied, “I would describe him as
a taxi driver, if what he is doing is
driving a taxi.” For the modern
classicists the market always
clears, and workers always have
a choice whether to work or not.
Efficiency wage theorists
might agree that all workers who
want jobs in a recession might
be able to get one, but they think
that some workers—like the
accountant—are underutilized
and are not maximizing their
value to the economy. As a taxi

driver, the man is still an

involuntarily unemployed

accountant. When demand in

the economy returns to a normal

level, he will return to his most

productive and efficient

occupation: accountancy.

Fundamental difference in views

about the ability of markets to

adjust lie at the heart of the debate

between Keynesians and the

classical economists.

Classical reality

Keynes would probably have

agreed with the American Nobel

Prize-winning economist Joseph

Stiglitz (p.338), who said that

during the Great Depression in

the US one quarter of the

unemployed workforce of Chicago

might be said to have chosen to

be unemployed because they

could have migrated west to

California to pick fruit on farms,

along with the millions of others

who did so. He said that

nonetheless, this still represents

a massive failure of the market,

and if classical theory suggests

that there is nothing more to be

done than commiserate with the

unemployed on their bad luck, we

would be better off not consulting

the theory at all. ■

Is an accountant driving a taxi an out-
of-work accountant or an in-work taxi
driver? Keynesians might say that he is
involuntarily unemployed. New classical
economists say he has got a job.

John Maynard Keynes

Born in 1883, the year that

Karl Marx died, John Maynard

Keynes was an unlikely savior

of the working class. Raised in

Cambridge, England, by

academic parents, he lived a

life of privilege.

He won a scholarship to

Cambridge University, where

he studied mathematics, then

spent time working for the

British government in India

and published his first book:

Indian Currency and Finance.

Keynes was an advisor

at both the Paris Peace

Conference after World War I

and at the Bretton Woods

Conference after World War II.

He always did several things

at once—while writing The

General Theory, he built a

theater, and he counted

leading writers and artists

among his friends. Keynes

made his fortune on the stock

market and used much of it to

support his artist friends. He

died of heart problems in 1946.

Key works

1919 The Economic

Consequences of the Peace

1930 A Treatise on Money

1936 The General Theory of

Employment, Interest,

and Money

The sooner involuntary

unemployment is disposed

with, the better.

Robert Lucas