Abstract

The General Theory defended Keynes's long‐held belief that capitalism could not achieve full employment without government help. The effects of wage rigidity were well known; Keynes tried to show that even price flexibility—contrary to Say's Law—could not reduce unemployment. Keynes did so by hobbling his decisionmakers with “psychological laws,”; like the consumption function, that linked nominal prices together. These produced a rigidity of relative prices that justified government intervention. Keynes's followers seem to have rejected his psychological theories, emphasizing instead nominal rigidities or uncertainty, either of which is consistent with “classical”; thinking and Say's Law.