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Explaining the Aggregate Price Level with Keynes’s Principle of Effective Demand

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The conventional wisdom about Keynes’s Principle of Effective Demand is that it states something about quantities. It is widely held that the Principle determines the levels of output and employment in a world not governed by Say’s Law. This paper argues that the Principle of Effective Demand goes beyond this to explain not only ‘real’ activity levels but also the aggregate price level. A variant of the Post Keynesian D/Z-model is brought together with Marxian reproduction schemes to derive this result.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 04-95.

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Length: 24 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:kof:wpskof:04-95

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Keywords: Effective demand; multiplier; Post Keynesianism; D/Z-model; reproduction schemes;

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  1. E. Roy Weintraub, 1974. "Keynes' Employment Function," History of Political Economy, Duke University Press, vol. 6(2), pages 162-164, Summer.
  2. Chick, V., 1983. "Macroeconomics after Keynes: a reconsideration of the general theory," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  3. Dutt, Amitava Krishna, 1987. "Keynes with a Perfectly Competitive Goods Market," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 275-93, December.
  4. Claude Gnos, 2004. "Is ex-ante ex-post analysis irrelevant to Keynes's theory of employment?," Review of Political Economy, Taylor and Francis Journals, vol. 16(3), pages 335-345.
  5. Hicks, J. R., 1987. "Methods of Dynamic Economics," OUP Catalogue, Oxford University Press, number 9780198772873, September.
  6. Tony Thirlwall, 1998. "A 'Second Edition' of Keynes's General Theory," Studies in Economics 9820, Department of Economics, University of Kent.
  7. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  8. Gilbert Koenig, 1980. "Les fondements microéconomiques du principe de la demande effective," Revue Économique, Programme National Persée, vol. 31(3), pages 430-464.
  9. Giuseppe Fontana, 2004. "Hicks on monetary theory and history: money as endogenous money," Cambridge Journal of Economics, Oxford University Press, vol. 28(1), pages 73-88, January.
  10. Casarosa, Carlo, 1981. "The Microfoundations of Keynes's Aggregate Supply and Expected Demand Analysis," Economic Journal, Royal Economic Society, vol. 91(361), pages 188-94, March.
  11. Palley, Thomas I, 1997. "Expected Aggregate Demand, the Production Period and the Keynesian Theory of Aggregate Supply," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(3), pages 295-309, June.
  12. Jochen Hartwig, 2004. "Keynes's multiplier in a two-sectoral framework," Review of Political Economy, Taylor and Francis Journals, vol. 16(3), pages 309-334.
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Cited by:
  1. M. G. Hayes, 2008. "Keynes's Z function: a reply to Hartwig and Brady," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 811-814, September.
  2. Jochen Hartwig, 2011. "Effective Demand: Securing the Foundations," Working Papers PKWP1211, Post Keynesian Economics Study Group (PKSG).
  3. Jochen Hartwig, 2009. "D and Z in ROPE – Will the Real Keynes Please Stand Up?," KOF Working papers 09-243, KOF Swiss Economic Institute, ETH Zurich.

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