Between Pigou and Keynes: Champernowne on employment and expectations

The paper investigates Champernowne's 1936 attempt to sort out the debate between Pigou (1933) and Keynes (1936) about employment determination. Champernowne agreed with Keynes that workers can only bargain for a money-wage, but argued that, to the extent that workers' (adaptive) price expectations lead to accelerating inflation or deflation, this will prompt central banks to change interest rates in order to bring the economy to its equilibrium ("basic") unemployment rate, with real wages equal to their anticipated values. However, that mechanism will not work if general uncertainty ("nervousness") prevails among businessmen.