THE SECOND CRISIS OF ECONOMIC THEORY

Abstract

This chapter discusses the second crisis of economic theory. It is related to the first crisis—the great slump of the thirties. The first crisis arose from the break­down of a theory that could not account for the level of employment. The second crisis arose from a theory that could not account for the content of employment. The second crisis links up with the first. The first crisis failed to be resolved because there was no solution to the problem of maintaining near-full employment without inflation. The experience of inflation has destroyed the conventions governing the acceptance of existing distribution. Income from property is not a reward of waiting but a reward of employing a good stock broker. There is also the problem of the relative levels of different types of earned income. The chapter also discusses the marginal productivity theory.