This has become a highly influential view. For example, Milton Friedman concurred when he argued that Keynes ... deviated from Marshall, and it was a momentous deviation,... in reversing the roles assigned to and quantity. He assumed that, at least for changes in aggregate demand, quantity was the variable that adjusted rapidly, while was the variable that adjusted slowly, at least in a downward direction (p. 209). More recently James Tobin has argued that one way to appreciate the importance of this change of dynamic structure is to analyze the stability implications of and Walrasian adjustment processes. Tobin argues persuasively that Keynes' achievement was to show that, in a capitalist economy, market forces may be too weak to generate a full-employment equilibrium. Describing Keynes' achievement in this way renders irrelevant the Pigou argument that Keynes failed to establish the existence of an underemployment equilibrium. Thus Tobin writes [t]he real issue is not the existence of a long-run static equilibrium with unemployment, but the possibility of protracted unemployment which the natural adjustments of a market economy remedy very slowly if at all (pp. 19596). In the light of these arguments Tobin develops two simple macro models, one reflecting the Walras-Keynes-Phillips (W-K-P) adjustment relation and the other reflecting the (M) adjustment relation. It is clear from Tobin's analysis that the speed of adjustment of and quantity is not the only characteristic distinguishing the and Walrasian approaches. The functional specification of the two adjustment processes is also different in that Marshallian adjustment in a particular market is that quantity adjusts to the difference between demand and supply for existing quantity. Walrasian adjustment is that quantity adjusts to the difference between demand and supply at existing price (Tobin, p. 196). This comment endeavors to make the following points on Tobin's analysis: 1) Tobin's statement of the stability condition of the W-K-P model is incorrect -the correct stability condition is in fact more restrictive. 2) Tobin's specification of the M model is, as Tobin himself is aware, ... separable into output and equations. Furthermore the output equation ... is a stable differential equation... (p. 200). This avoids the question of whether the adjustment mechanism will in fact yield a stable model in output as well as price. An output equation in keeping with Tobin's statement of the adjustment process is specified below. The condition for stability is derived and shown to be weaker than the W-K-P condition. *Lecturer in economics, University of Melbourne.

This paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a “competitive” secondary sector. Either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and, under reasonable specifications of key parameters, to cause greater fluctuations of primary-sector employment than secondary-sector employment. This pattern agrees with the stylized facts of the U. S. economy.

One of the perennial problems of business cyde theory has been the search for a convincing empirical description and theoretical explanation of the behaviour of wage rates during fluctuations in output and employment. Even the empirical question is hardly settled, although the most recent careful study (Geary and Kennan) confirms the prevailing view that real-wage movements are more or less independent of the business cycle. There are really two subquestions here. The first presumes that nominal wage stickiness is the main route by which nominal disturbances have real macroeconomic effects, and asks why nominal wages should be sticky. The second focuses on real wages, and asks why fluctuations in the demand for labour should so often lead to large changes in employment and small, unsystematic, changes in the real wage.