DID THE MARKET‐CLEARING POSTULATE PRE‐EXIST NEW CLASSICAL ECONOMICS? THE CASE OF MARSHALLIAN THEORY*

Abstract

Have new classicists invented market clearing or have they just rehabilitated it? This is the question addressed in the present paper. It is generally agreed that market clearing underpins Walrasian theory, so my exploration is limited to the question of whether this is also true for Marshallian theory. I will claim that this is broadly the case: once Marshallian theory is properly reconstructed, it exhibits market clearing as a constantly present result. Still, an important difference between market clearing à la Walras and market clearing à la Marshall exists: in the former market clearing is equilibrium, while in the latter market clearing can coexist with disequilibrium. Next, I investigate whether my conclusion extends to the labour market. Again the conclusion reached is affirmative both for Marshall's theory and for present‐day Marshallian models. As to the latter, I take Friedman's Phillips curve model as a case study. I show that this is a market‐clearing model in which, strictly speaking, there is no place for the concept of unemployment—quite an ironical result for the paper that introduced the notion of the natural rate of unemployment!