Quotation of the Day…

by Don Boudreaux on November 2, 2011

in State of Macro

… is from page 102 of Frank Knight’s detailed and brilliant 1937 review of Keynes’s General Theory:

To explain unemployment, Mr. Keynes first assumes (a) unemployment, and (b) such a price situation, and (c) such a mode of operation of the price mechanism, that growth in employment is blocked.  This blocking is the fundamental mystery [original emphasis].

As Knight goes on to explain, no pre-Keynesian economist would disagree with Keynes that, under the conditions that Keynes assumed, unemployment will be long-lasting.

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