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Is ex-ante ex-post analysis irrelevant to Keynes's theory of employment?

  • Claude Gnos

Ex-ante ex-post analysis has become a standard tool in macroeconomics. Yet Keynes dismissed it. We argue that Keynes's dismissal of ex-ante ex-post analysis is not an oddity but an indication of the originality of his theory of employment compared to standard macroeconomics. First, the principle of effective demand does not amount to a process that determines employment and income at the point of intersection of the traditionally defined ex ante supply and demand functions. Second, the finance motive allowed Keynes to confirm the identity of aggregate supply and demand already asserted in The General Theory. This latter conclusion is puzzling, however, since the principle of effective demand presupposes the possibility of a discrepancy between supply and demand. We suggest that Keynes's theory of employment is linked to a theory of income distribution whereby profits are a redistributed share of factor income which is transferred to firms when prices exceed factor costs. The identity and the equilibrium condition then relate to separate measurements of income and output, factor cost and prices.

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Article provided by Taylor & Francis Journals in its journal Review of Political Economy.

Volume (Year): 16 (2004)
Issue (Month): 3 ()
Pages: 335-345

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Handle: RePEc:taf:revpoe:v:16:y:2004:i:3:p:335-345
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