Exactly how should we formulate alternative interpretations of Keynes's theory of aggregate demand and employment? This is, it seems to me, the main issue that is raised by Clower's paper. (I leave out the question of what Keynes actually meant himself, on the ground that I have nothing to contribute to that exegetic issue.)

Let the term “Keynes I” refer to a macromodel in which the aggregate product market is in (Marshallian or Walrasian) equilibrium, while the labor market is in disequilibrium in the sense that at least some house-holds (those that are involuntarily unemployed) are inside their (notional) supply curves for labor as a result of sticky nominal wages. Let the term “Keynes II” refer to a macromodel in which there is simultaneously excess supply in both the labor market and the product market as a result of stickiness of both nominal wages and nominal prices; this model corresponds, of course, to the Barro-Grossman interpretation of Keynes, and it is the foundation for the simple multiplier model and the 45° cross diagram.

Whereas the “Keynes I” model implies that changes in employment are depicted as movements along a notional demand curve for labor, the “Keynes II” model implies that an (vertical) “effective” labor demand curve shifts in response to changes in product demand. With either of these interpretations, Keynes certainly made an important contribution to macroeconomics by suggesting mechanisms both for the determination of the actual level of aggregate output and employment and for influencing the labor market by way of variations in aggregate product demand.