Theory of Unemployment [Hardcover]

Arthur Cecil Pigou (Author)

Product Details

• Hardcover: 319 pages
• Publisher: Routledge; New issue of 1933 ed edition (March 9, 1968)
• Language: English
• ISBN-10: 0714612421
• ISBN-13: 978-0714612423
• Product Dimensions: 8.4 x 5.9 x 1 inches
• Shipping Weight: 1.4 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #3,032,090 in Books (See Top 100 in Books)

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5.0 out of 5 stars Pigou's powerful response to Keynes's A Treatise on Money leads directly to the General Theory, December 27, 2007

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Michael Emmett Brady "mandmbrady" (Bellflower, California ,United States) - See all my reviews
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This review is from: Theory of Unemployment (Hardcover)

Pigou's The Theory of Unemployment(1933;TTOU) is the first modern treatment of macroeconomics.Pigou introduces aggregation procedures in a very advanced mathematical treatment of macroeconomics that compelled Keynes to respond with his General Theory.Incredibly,the book has not been read by 99.5 % of economists since 1933.It is simply impossible to understand the General Theory if TTOU is not read.This is because Keynes presents his assumptions and mathematical model("... concoctions...',1936,p.273)in a manner that allows a reader of TTOU to see the comparable modeling in the GT.It is easy to see that Keynes's specification of an aggregate demand price and an aggregate supply price follows directly from Pigou's pioneering efforts,as does Keynes's decision to divide through his D-Z model by the wage unit,W.Pigou was the first to present the necessary and sufficient first and second order conditions for profit maximization at the aggregate level for a purely competitive macroscopic economy in the form of pwsubscriptF'(N)=1.pw subscript equals 1/F'(N).This ,of course,is expressed by Keynes as dDw/dN=pw psi'(N) in chapter 4 of the GT and as dDw/dN=pw phi'(N) in chapter 20.dZw/dN=1 because Z=wN+P in wage units equals Zw =N+Pw,where P is defined by Keynes 5 times on p.283 of the GT as expected economic profits.Keynes left his microeconomic improvements,which he correctly describes as digressions from the GT in chapters 4-7, concerning heterogeneous inputs and user cost ,out of his formal mathematical model so that he could present a clearcut comparison-contrast between his theory and Pigou's theory.The major difference turns on Keynes's mathematical demonstration in chapter 21 of the GT on p.306 that the existence of uncertainty,as opposed to risk,means that there will be a speculative demand for money that will divert aggregate spending away from investment in durable,long lived,fixed investment in capital goods and into stock and commodity speculation which will,as first pointed out by Adam Smith in 1776, "...destroy and waste.." the aggregate savings of a nation(Smith,1776,pp.339-340,Modern Library(Cannan)edition).The result will be involuntary unemployment.This was Keynes's goal.
It is incredible that Pigou's 1933 masterpiece,like Keynes's 1936 GT,has been ignored by an economics profession that is addicted to playing games with different specifications of normal distributions at the macro level.These manipulations are similar to the manipulations of epicycle models that dominated astronomy from 130 AD to 1635 AD.Any goodness of fit test will demonstrate that the macroeconomic data is not close to being normally distributed.It is interesting that Pigou recognized this but never attempted to formally integrate uncertain expectations into his mathematical model.Keynes was actually behind Pigou in terms of his recognition of the impact of uncertainty on expectations and the recognition of the role of optimism and pessimism.(Keynes's "animal spirits" of chapter 12 of the GT).It was in the GT that Keynes surpassed PIgou in this respect.
Every macroeconomist should have this book.It is easy to see that if Keynes's speculative demand for money,L2(M2),is equal to 0 that Keynes's GT results and Pigou's TTOU results are the same.