The problem of employment is a central topic in economic thought.

Economists of all traditions and schools have always admitted short-run fluctuations in aggregate employ­ment levels associated with the business cycle and explained them with reference to a variety of factors.

Concerning the replies to this question provided in the course of the history of eco­nomic thought, there is often a good deal of misapprehension among economists, to which John Maynard Keynes himself contributed, by attributing to all his predecessors from David Ricardo to Arthur Cecil Pigou (with few exceptions including Thomas Robert Malthus and Karl Marx) the view that both Say’s law and full employment hold. Yet things are not so simple, and Keynes’s definition of “classical” economists must be questioned in the light of recent developments in economic theory and the history of economic thought.

Keynes’s definition is well suited to the approach he intended to attack, that is the marginalist theory of employment, particularly in the form put forward by Pigou in the 1930s. However, it is not representative of the approach of Ricardo and other classical economists (classical in the sense of Marx: from William Petty to Ricardo, including of course the French Physiocrats). Most of the old classical economists, particularly Ricardo, accepted Say’s law and, on this basis, denied the possibility of “general gluts” in the economic system. Therefore they did not envisage the possibility of a fall in the employment level owing to a fall in aggregate demand. Even those who seemed to per­ceive the possibility and the importance of such phenomena (like Malthus) were unable to provide a consistent explanation of how this could come about.

However, in the classical economists, adherence to Say’s law (that is, to the view that income is entirely spent, so that, on aggregate, the value of expenditure is equal to the value of production) did not entail the view that full employment prevails. Indeed, there is no sign of such a vision of the economic system, nor is there any reason for it to be present, since the tendency to full employment depends on a complex theoretical con­struction that began to emerge only after Ricardo’s death with the (at the time highly controversial) wage fund theory.

Keynes’s attack was in fact addressed to the marginalist (neoclassical) theory, and his positive contribution - albeit with some internal contradictions - was meant to demon­strate the normality of a level of employment below full employment not just in the short run, but also in a long-run equilibrium average position around which the economy fluctuates.

Shortly after the publication of The General Theory (1936) however, its conclu­sions were overturned by the neoclassical synthesis put forward by Hicks (1937) and Modigliani (1944), and involuntary unemployment was redefined as a short-run phe­nomenon, and/or a phenomenon necessarily caused by the existence of some nominal or real price and wage rigidity. Since then, mainstream debates on the theory of employ­ment have substantially revolved around the legitimacy of assuming such rigidities (gen­erally considered possible only in the short run), and their sources and consequences.

Outside the main stream, various strands of economic theory by contrast have devel­oped analyses which incorporate and expand Keynes’s contribution to employment theory, leading to quite different implications on a number of fundamental theoretical and policy issues.