By John Weeks (auth.)
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Extra info for A Critique of Neoclassical Macroeconomics
In the 1950s and 1960s the quantity-adjustment view was tolerated as a first approximation for empirical work. More recently the new classical economics school has shown no such tolerance, arguing that the perfectly-flexible-price model is suited to reality. In the next chapter we introduce the supply side of the synthesis model, which provides the rationale for the belief that capitalist economies tend automatically to adjust to a position of full employment stability. 1 AGGREGATE ONE COMMODITY PRODUCTION The supply side of the synthesis model involves the introduction of an aggregate relationship between factor inputs and output.
With the introduction of money, the price level becomes a variable, and the real wage is not simply w, but Wlp, where W is the money wage and P the price level (or, more precisely, the price of the single commodity). Disequilibrium in the labour market is not eliminated by a movement in the real wage as such, but by adjustment of W or p or both of these. With the introduction of money, the real wage does not exist independently of the two nominal variables W and p.
First, the neoclassical model in effect treats wages as a cost to the capitalist, a payment for a commodity like any other, and the worker as a commodity seller like any other. In so far as what workers sell is viewed as disembodied labour services, the interest rate is irrelevant. The rate of return on bonds, for example, does not in the short run have an impact upon how many apples a farmer sells on a given market day. Thus, the omission may arise from an analogy with commodity sellers in general, an issue pursued further in the next section.
A Critique of Neoclassical Macroeconomics by John Weeks (auth.)