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‟This surplus labour is involuntary: it is created by the system against the wishes of workers, rather than reflecting their preference for more leisure time, which is a potential outcome of new classical theory!



Related: " Keynesian Boosts Have Not Always Worked. The Modern Classical Perspective Explains Why ", by Anwar Shaikh. On the relation between Keynesian fiscal policies, profits and economic growth.

A sustained boost to demand may therefore reduce unemployment, but if this ultimately leads to a fall in the rate of profit due to an increase in the wage share, growth will eventually slow and unemployment will rise once again towards the normal rate. But Shaikh’s classical theory can give rise to complex dynamics: policy can impact labour force and productivity growth, so that employment can rise and unemployment fall, even while the rate of profit rises due to faster productivity growth as an outcome of, say, a successful industrial policy. The workforce as a whole could gain from higher wages and employment even as profits rise. The classical curve could also shift down via a capital-labour accord (an incomes policy), rather than one-sided legislative attacks on workers a la Thatcher. The key for policymakers is to channel the economic forces which constrain the systemic dynamics, in order to achieve socially beneficial outcomes.





Also see Nick Johnon's other article on Anwar Shaikh's economics: Modern Monetary Theory and Inflation – Anwar Shaikh’s Critique A sustained boost to demand may therefore reduce unemployment, but if this ultimately leads to a fall in the rate of profit due to an increase in the wage share, growth will eventually slow and unemployment will rise once again towards the normal rate. But Shaikh’s classical theory can give rise to complex dynamics: policy can impact labour force and productivity growth, so that employment can rise and unemployment fall, even while the rate of profit rises due to faster productivity growth as an outcome of, say, a successful industrial policy. The workforce as a whole could gain from higher wages and employment even as profits rise. The classical curve could also shift down via a capital-labour accord (an incomes policy), rather than one-sided legislative attacks on workers a la Thatcher. The key for policymakers is to channel the economic forces which constrain the systemic dynamics, in order to achieve socially beneficial outcomes.

In the classical theory described here, involuntary unemployment is created by what Shaikh calls, which is in contrast to the mainstream concepts of perfect or even imperfect competition. The implication of the latter is that the removal of so-called market imperfections will increase efficiency and reduce unemployment by making the market conform to a theoretical perfect ideal. Real competition gives rise to fluctuations of unemployment around the normal rate, which will not in general correspond to full employment, even with flexible wages in the labour market. These patterns can take many years to play out in a capitalist economy. All this is in marked contrast to both neo-classical and Keynesian theory and is closer to Marx’s theory of the reserve army, the dynamics of which are described in Volume I ofEconomic policy can change the dynamics of the relationships described above,. Keynesian policies which expand demand can reduce unemployment, at least for a time. The longer term outcome will depend on the effects of any set of policies on profitability.