Unemployment and the
There are …, I should admit, forces which one might fairly well
call “automatic” which operate under any normal monetary
system in the direction of restoring a long-period equilibrium
between saving and investment. The point upon which I cast
doubt—though the contrary is generally believed—is whether
these “automatic forces” will … tend to bring about not only an
equilibrium between saving and investment but also an opti-
mum level of production.
—John Maynard Keynes, 1973, vol. 13, p. 395
Analysis of the level of unemployment in a market economy requires some characterization of the relationship between unemployment and the operation of the market mechanism. The aim of this chapter is to classify the various positions regarding the problem of unemployment, according to the role that differing schools of economic thought ascribe to the market mechanism. It will be possible in this way to reveal the structure of ideas that underlie the differing positions.
Two main groups of writers dominate this discussion. On the one hand, there are those authors who argue that, in the long run, the forces of demand and supply tend to push the economic system toward a fullemployment level of activity (or towards a natural rate of unemployment). These authors we shall refer to as the “market-mechanism group.” On the other hand, there are those who, while accepting the characterization of a market mechanism that operates under the influence of the