The Principle of Effective Demand

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Abstract

In this chapter it is discussed how Keynes, though dedicating a chapter to the principle of effective demand in his GENERAL THEORY (chap 3), does not define the principle and only twice mentions the wording effective demand. It is further argued that most of Keynes's analysis of Chapter 3 was carried out at a level of investigation that concerns the behaviour of a 'monetary production economy', within a given institutional set-up. However, the principle of effective demand belongs to a more fundamental level of investigation, towards which Keynes was able to go only partially. Perhaps, he never had the time or the necessary calm or the appropriate analytical tools to go back and face it explicitly. After Keynes, those who tried to re-absorb his analysis into traditional theory have been careful not to mention the principle at all; while those who have endeavoured to carry further Keynes's 'revolution' have been too quick to identify it, thus remaining half-way between his behavioural relations and the deeper level to which the 'principle' of effective demand really belongs. The principle of effective demand must be seen on two distinct levels of investigation - one behavioural and the other fundamental, or 'natural', as the early classics called it. These levels of investigations are both essential and complementary, though they are distinct and aimed at different purposes.
Lingua originaleEnglish
Titolo della pubblicazione ospiteA “Second Edition” of the General Theory, volume I
EditorG. Harcourt, P. Riach
Pagine93-104
Numero di pagine12
Stato di pubblicazionePubblicato - 1997

Keywords

  • Effective Demand
  • Keynes vs Walras
  • Keynesian adjustment mechanism
  • aggregate demand
  • aggregate supply
  • long-run full employment
  • the muliplier process vs the effective demand process

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