IDEAS home Printed from https://ideas.repec.org/a/taf/revpoe/v14y2002i2p241-258.html
   My bibliography  Save this article

Uncertainty and Consumption in Keynes's Theory of Effective Demand

Author

Listed:
  • Sven Larson

Abstract

Keynesian uncertainty normally exercises influence over effective demand via private investment. This paper expands the scope of influence of uncertainty to comprise private consumption as well. When private spending is explicitly made subject to uncertainty the individual consumer is forced to take active steps to make the future predictable. Contracted, sticky money prices are key tools in the consumer's efforts to keep uncertainty at a minimum and match earnings with consumption costs. However, even if prices are successfully contracted there is still need for preparedness against contingencies. Consumers therefore regulate their propensity to consume with reference to their confidence in the future: the propensity to consume is high when confidence is strong and low when confidence is weak. Because of its effect on the propensity to consume, consumer confidence exercises a significant influence on macroeconomic activity in general.

Suggested Citation

  • Sven Larson, 2002. "Uncertainty and Consumption in Keynes's Theory of Effective Demand," Review of Political Economy, Taylor & Francis Journals, vol. 14(2), pages 241-258.
  • Handle: RePEc:taf:revpoe:v:14:y:2002:i:2:p:241-258
    DOI: 10.1080/09538250220126546
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/09538250220126546
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paul Davidson, 1994. "Post Keynesian Macroeconomic Theory," Books, Edward Elgar Publishing, number 124.
    2. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
    3. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
    4. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    5. Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
    6. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 759-789.
    7. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    8. Robert Dimand, 1988. "The Origins of the Keynesian Revolution," Books, Edward Elgar Publishing, number 139.
    9. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
    10. Paul Davidson, 1986. "Finance, Funding, Saving, and Investment," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 9(1), pages 101-110, September.
    11. Dow, Sheila C, 1995. "The Appeal of Neoclassical Economics: Some Insights from Keynes's Epistemology," Cambridge Journal of Economics, Oxford University Press, vol. 19(6), pages 715-733, December.
    12. Roy J. Rotheim, 1988. "Keynes and the Language of Probability and Uncertainty," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 11(1), pages 82-99, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:revpoe:v:14:y:2002:i:2:p:241-258. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/CRPE20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.