Malinvaud: The Theory of Unemployment Reconsidered

Malinvaud, Edmond. (1985). The theory of unemployment reconsidered (2nd ed.). New York, NY, USA: B. Blackwell.

“Eight years after the first edition of this book, its main message still stands, namely that the microeconomic theory of fixed-price general equilibrium has direct significance for the macroeconomic theory of involuntary unemployment” (vii).

“Before I proceed, I must make it clear why general equilibrium analysis is a proper approach to the study of unemployment. Indeed, most economists nowadays strongly abject to such an idea. The objection comes from a misunderstanding of what general equilibrium analysis really is. Economists have been brought up to think that the very notion of equilibrium implies that, for each commodity, supply must equal demand, which of course cannot be the case for labour if some involuntary unemployment remains. But a general equilibrium is an abstract construct that has no logical obligation to assume equality between supply and demand” (4-5). “The classical development of economic theory and the dominant role played by the Walrasian system explain why many people are not reluctant to accept that the name ‘equilibrium’ could be applied outside of this system. Some of these people, often irritated by the highbrow mathematical theory that was built around the concept of competitive equilibrium, claim that such a concept is hopelessly inadequate to any real problem. Others speak as if the Walrasian equilibrium was not an abstraction but almost a real situation that would prevail if no disturbance occurred.” (5).

The rest of the book attempts to apply this general equilibrium seeking model to the issue of unemployment and policy.