The dilemma of durable goods

Abstract

1 Under the slogan of the ‘neoclassical synthesis’ the neoclassical general equilibrium theory and Keynesian economics have both been taught in parallel in two classrooms. In one it is taught that the price mechanism works; a general equilibrium exists at which labour is fully employed and the economy is in a state of Pareto-optimum, while in the other, full employment is taught to be impossible and the market has to be supported and supplemented by conscious and conscientious economic policy activities of the government. These two views should of course be incompatible. As Keynes has pointed out, there must be a hidden hypothesis of ‘Say's law’ behind the neoclassical world; where it is rejected, the theory has to abdicate and be replaced by a new regime in which unemployment is recognized as a long-standing, unremovable state of affairs, that is inevitable. The mechanism of self-regulation of the market does not work where Say's law of the market is negated. It is deeply disappointing particularly for the author that he has to complete this volume with the final section of the Addendum which establishes a thesis that no general equilibrium of full employment is possible unless the equalization of rates of profits between capital goods is ruled out.