This paper is in the spirit of the temporary equilibrium approach to macroeconomics. It basically extends that framework to cover a profit-sharing system and then compares the macroeconomic characteristics with those of the more familiar wage system. A first, preliminary step is to demonstrate how a microeconomic model of monopolistic competition can be built up into a junior member of the Keynesian macro family. The methodology is to create from first principles -including a careful formulation of a monopolistically competitive product market structurea natural underpinning for the standard aggregate demand specification.' The primary goal of the paper is to apply the integrated monopolistic-competitionKeynesian-type apparatus described above to investigate the macroeconomic properties of a profit-sharing economy. The existence of a consistent general framework covering both cases invites meaningful comparisons that indicate clearly why an economy based on profit-sharing principles possesses natural immunity to stagflation. By contrast, the wage economya system we have largely accepted without critically examining its macroeconomic consequences-is more prone to suffer from unemployment and inflation. The policy implications for aggregate demand management in wage and share systems are analyzed and contrasted. In writing this paper, my philosophy has been to not shirk from using those reasonable parameterizations and functional forms which yield nice crisp results and permit me to focus sharply on the essential logic of basic issues. It is certainly possible to present the main results in a somewhat more general formulation (as the astute reader will appreciate), but, I fear, only at some cost of distracting attention from those central features I wish to highlight.
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