The New Keynesian view of aggregate demand: some reflections from a Sraffian standpoint
AbstractThe paper contends that the derivation of the aggregate demand curve in the new Keynesian literature is insufficient to provide the theoretical ground for the use to which it is usually put; namely, as a theoretical basis for the claim that long-run wage and price flexibility would push a capitalist economy to the full-employment or "natural" level of output. It is argued that the derivation solely on the basis of the propositions about optimising household consumption expenditures is insufficient to guarantee a decreasing aggregate demand function without circular reasoning. This point is clarified by use of a very simple two-commodity production model of long-run steady states due to Spaventa and Nell. To guarantee a decreasing aggregate demand function, the new Keynesian approach must invoke the kinds of propositions used in more traditional derivations; propositions which themselves are in question on capital-theoretic gr ounds.
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Bibliographic InfoPaper provided by University of Sydney, School of Economics in its series Working Papers with number 2012-15.
Date of creation: Nov 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-26 (All new papers)
- NEP-HME-2013-01-26 (Heterodox Microeconomics)
- NEP-MAC-2013-01-26 (Macroeconomics)
- NEP-PKE-2013-01-26 (Post Keynesian Economics)
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