Building on my previous works concerning Pigou’s macroeconomic theory and its evolution (Di Matteo 2016, 2017) I examine the argument elaborated by Pigou in his Employment and Equilibrium. A Theoretical Discussion which, being published in 1941, is the first comprehensive answer (as stated in the Preface) Pigou gave to the analysis put forward by Keynes in his General Theory. This appears to be a useful task as the book, as is to be expected, is often written in a cumbersome and idiosyncratic way.  I will limit myself to the first two parts of EE which are the core of the book. The paper is in four parts. In the first the works by Pigou preceding EE are briefly summarized so as to reconstruct Pigou’s trajectory from The Theory of Unemployment (1933) to the new approach.  In the second  I will concentrate on how Pigou elucidates the conditions necessary for an economic system to attain a short period flow equilibrium. In this context he elaborates an open macro model which can be closed in two different ways (although several subcases are also discussed). The paper will also present a diagrammatic analysis of Pigou’s theory in the two cases elucidating the structure and the working of the model. The latter discards the wage fund doctrine that, in a peculiar form, was present in his Theory of Unemployment, although a two sector model is preserved. Differences with his previous book (TU) related to (real/monetary) wage inflexibility and monetary factors are also described and discussed. Pigou however does not limit himself to deal with the short period  but engages in an interesting discussion of the long period centred on the notion of stationary state. In this way he admits that Keynes’s theory is not limited, as commonly acknowledged,  to the short run: this is discussed in the third part. In arguing along these lines he comes close to describe what will be recognized later as the Pigou effect. In carrying his task Pigou puts forward what appears to be one of the first thorough analysis (microeconomically founded) of a newly born concept, the aggregate savings/consumption function and this will be discussed in the fourth part of the paper.