Controversies in the Theory
The high and persistent levels of unemployment being experienced in most Western economies have moved the controversy over the analysis of employment to center stage There would probably be general agreement that much of macroeconomic theory has been found wanting when it comes to adequately explaining this outstanding feature of our recent experience. Nor does macroeconomics seem to be any more successful in suggesting tolerably satisfactory and workable remedies for the problem. Not only is there today a plethora of competing theories and models, but even the framework within which these theories are developed and the criteria by which they are to be compared and criticized are not agreed upon. Furthermore, this collapse of theoretical consensus has its counterpart in the arena of policy debate—alternative theories of the desirable role of government policy abound. Indeed, the theory of employment appears once more to have become the kind of open question that it was between the wars, and contemporary macroeconomic controversies have returned to many of the questions which dominated the 1930s debates in monetary theory and the theory of employment (before the term macroeconomics had been invented). It might not be out of place, therefore, to reconsider the issues that were then in the fore and to attempt to identify the origins of our present confusion.1
Such an exercise is not only of historical interest. It can also shed light on the manifest contemporary failure of the propositions of Keynes’s General Theory to maintain the theoretical hegemony that they had at one time apparently established and on the analytical issues at stake today.