The “L-shaped aggregate supply curve” is routinely treated as nothing more than a primitive version of a Phillips curve. This is misleading because it is in fact a later reconstruction, based on a presumption of the superiority of the Phillips curve, of a well-developed theoretical outlook. That outlook saw the problems of inflation and unemployment as substantially separate ones. The theory of wage determination, in particular, was intensively studied with little reference to the level of unemployment and understood with little regard to the marginal product of labor. Contact with that vision was lost as econometric and other work on the Phillips curve developed, and this explains the later failure to appreciate the ideas of the 1950s. It is suggested that the older ideas are worth revisiting not just for their historical interest, but also on their merits.
AIL Theory and the Ailing Phillips Curve: A Contract Based Approach to Aggregate Supply
