Modern economists dealing with the topic we are discussing seem to find inspiration in Leon Walras’ Elements. That they still have doubts or reservations about Say’s law is puzzling to me because Walras’ famous work can be reasonably interpreted as a detailed, mathematical statement of the law of markets, although Walras himself seems not to have perceived it. His exposition demonstrates, through the medium of a series of simultaneous equations, the interdependence and mutual determination of all values (prices).

The cumulative decline in real income which is set up through any one contraction of supply not offset by another expansion of supply will, at each successive induced withholding of supplies (induced through rigidity of prices in non-competing activities) tend to have a smaller effect.

There is a sense in which the use of money appears to be partly responsible for the phenomenon which Clower has recently termed “the dual-decision” situation (although the appearance is, I shall suggest, illusory). In my own terminology, Clower is concerned with a condition of the economy in which potential decisions to consume and potential decisions to produce do not connect, or under which potential decisions to work and potential decisions to employ do not connect.

In a very interesting paper, published since the present book was submitted to the publisher, Leland B. Yeager suggests that basically my position does not differ from that of Leijonhufvud and Clower.

It is puzzling to me that such acute critics of Keynes as Leijonhufvud, Clower and Yeager still seem not to have shaken off the notion (expressed in my terminology) that some supplies of non-money do not become “effective” demands because, in the aggregate, sellers demand (temporarily) additional money instead of other non-money; or, as it is sometimes expressed, that conditions can arise in which an “excess demand” for money can develop—an “excess” which (in Keynes’ words) can be “choked off” only by depre

In Clower’s and Leijonhufvud’s treatments, there is what I interpret as a quite different explanation suggested for “the hiatus”—an explanation which is independent of the demand for money issue, although neither economist recognizes this explicitly.

As I explained (on pages 41-42 and pages 82-86), if there is much unemployed labor, the reduction of wage-rates in any particular occupation needed to make “full employment” in it profitable will, in general, be a greater reduction than will be necessary if unemployed workers in other occupations generally are also concurrently trying to price their labor for its profitable employment.

Only when inputs are widely priced incompatibly with current prospective yields, and output prices are widely fixed incompatibly with current money income and consumer price expectations do we find reasons for a general contraction in economic activity leading to chronic under-utilization or “sub-optimal utilization” of productive capacity. Cumulative, self-aggravating failures to maintain activity are due to pricing defects which first dam up the source of demands and then prevent the dam from being breached.

We are now in a position to consider Harry G. Johnson’s judgment (as disclosed in his 1970 Richard Ely Lecture1) of the economists whose teachings Keynes is generally believed to have “debunked”.

A difficulty we meet in considering H. G. Johnson’s views on the issue raised in Chapter I is that of identifying “the prevailing orthodoxy,” unless the common, but usually tacit, acceptance of Say’s law is supposed to define the group disparaged.