Labour Surplus Economy : A Neo-Keynesian Analysis
MIHIR RAKSHIT, THE LABOUR SURPLUS ECONOMY: A NEO-KEYNESIAN APPROACH, New Delhi, Macmillan, pp ix-^95.
THERE ARE ISOLATED applications of the Keynesian effective demand principle in the Indian context both in academic work and in official exercises for rationalizing policy decisions. But a persistent general reluctance can be discerned towards applying the Keynesian method for modelling the economy in the entirety of its inter-relations between different aggregate markets. The underlying hesitation is perhaps due to the perception of wide dissimilarity between the institutional descripition of our economy and that of the General Theory. This hesdtation is slowly giving way, mosdy as an outcome of the theorectical research in the 1970's following what is known as the crisis of Keynesianism, which has resulted in a pronounced widening of the scope of Keynesian macro-economics, by extending its use over a larger number of economic situations. The effective demand principle, for example, has ceased to be a synonym for macro-economics, and economists can tiow analyse, with allegedly equal ease, situations where unemployment persists despite an excess demand in the goods market. In the process, many of the specifications of the General Theory which appeared to be inseparable elements of the argument itself, have been demonstrated as but embodying Keynes's own perception of the empirical reality around him and thus easily substitutable by other specifications. Mihir Rakshit has taken the initiative in introducing this broader awareness of short-run aggregate analysis by most painstakingly and meticulously analysing the Indian economy in his book under review.
An innovation that characterizes his work throughout is to replace the dichotomy between consumption and investment goods by that between agricultural and industrial goods. This innovation, too, in an interesting sense, is Keynesian, since it is based primarily on the difference between the output behavior of the two sectors, one of which is assumed to have a given output, while the other's output changes in response to demand. We may recall that unlike in Marx's two-department scheme where the consumption and investment dichotomy has crucial analytical implications, Keynes's use of the distinction in the context of a single short run primarily utilizes the fact of the difference in the supply elasticities. Investment decisions being based in the General Theory on matters invariant in the income-propagation period, the output of investment goods remains constant during this period and