AMAL SANYAL The Political Economy of Keynesianism KEYNES'S observation that wage-cutting by individual entrepreneurs for raising their profits leads to a smaller aggregate demand has been too often taken to mean that Keynesian economics as a body of doctrines is sympathetic to wage bargaining by the working class. Nothing can however be farther from truth, since Keynes's vision of the labour market incorporates the neo-classical ("classical", in Keynes's terminology of the General Theory) orthodoxy that the real wage rate in equilibrium is equal to the marginal product of labour.1 [f a level of employment is established as a result of a certain volume of investment, the real wage is strictly determined by the marginal product of labour at this employment level. Money-wage bargaining will then result in a proportional rise in prices, leaving the real wage unchanged. If on the other hand, the level of investment rises, employment rises only by pushing the marginal product of labour and the real wage rate down. This aspect of Keynes's system seems to be very important to Keynes, so that he lays it all out in the very second chapter of the General Theory, before embarking on his exposition of the principle of effective demand: "[Thus] if employment increases, then, in the short period the reward per unit of labour in terms of wage goods must, in general, decline and profit increase."2 Thus it should be clear that in Keynes's own vision a rise in