Book Review: Unemployment, Recession and Effective Demand

In this concise, well-written volume, Professor Sardoni sets out to ‘provide a critical examination of the foundations of macroeconomics as developed in the tradition of Marx, Keynes and Kalecki’ (ix). In this regard, the author succeeds quite admirably. Despite the rather profound divergences in methodological approaches among Marx, Keynes and Kalecki, Sardoni argues that there is a common lineage linking these authors in relation to their respective analyses of the problems of unemployment, investment and effective demand. Sardoni argues that Kalecki’s contribution to the theory of effective demand is quite seminal and represents a possible ‘bridge’ between the Marxian and Keynesian traditions. Furthermore, he contends that Kalecki’s theory also resolves some of the analytical problems which continue to plague both Marx and Keynes. In Sardoni’s view, Keynes’s original hypothesis in The General Theory provides an analytical explanation of under-employment equilibrium in which the economy operates at an equilibrium level of output which does not necessarily correspond with full employment. Keynes argues that, contrary to ‘classical’ theory, there are no automatic mechanisms that will ensure that the economy tends toward full employment. In other words, the economy could experience long periods of excess productive capacity and under-employment. On the other hand, Marx’s analytical framework provides a coherent explanation of recurrent capitalist crises but is unable to explain prolonged periods of under-employment equilibrium. Sardoni contends that both Marx and Keynes encounter considerable problems in their respective micro-foundations in explaining the continued existence of under-employment. These micro-foundations assume considerable market perturbations and a competitive market structure. Sardoni argues that, by abandoning the assumption of free competition and adopting a theory of imperfect competition based upon a ‘profit mark-up’ approach and the ‘degree of monopoly’, Kalecki provides a more coherent set of micro-foundations in analysing the macroeconomic problems of unemployment and effective demand. Consequently, the problem of market forms acquires a critical importance for how the macro-economy behaves in relation to the problem of effective demand: