UNCERTAINTY, MONEY AND UNDEREMPLOYMENT

Abstract

This paper presents a restatement of Keynes’s underemployment equilibrium as a center-equilibrium system. The authors present their centralequilibrium underemployment model with the income-balancing mechanism. The authors postulate the existence of a causal link between the fundamental uncertainty and the center-equilibrium underemployment. Two channels of fundamental uncertainty are suggested here to capture this causal link, the capital channel and the money channel. Drawing upon Davidson (2009, p. 333; 1991, p. 138), the authors identify the capital channel of fundamental uncertainty with the entrepreneurial risk and the money channel of fundamental uncertainty with the cash-flow-managerial risk of asset-liability mismatch. From this, the author infer a conclusion that the economic policy of flexible liquidity supply cannot be mixed up with an economic policy of governmental spending under a highly ambiguous term “money pumping”.