Effective Demand and Short-term Adjustments in the General Theory
Keynes's principle of effective demand constitutes a pillar for Post Keynesian theories. But Keynes's presentation remains difficult to interpret, mainly because the aggregate demand function is based on entrepreneurs' expectations. The problem is, then, to demonstrate how these entrepreneurs (whose only concern is making profits) are led to generate the effective demand (which partially results from the consumers' and investors' behaviour). Previous studies by authors such as Weintraub and Davidson highlight the trial-and-error procedure here involved. But since their analyses are not built on a precise accounting of monetary flows, they fail to demonstrate formally the coherence of the whole adjustment process. The aim of this article is to provide such a formal demonstration. We thus concentrate on verifying how the General Theory constitutes a coherent framework to analyse temporary equilibriums (at the end of every elementary period) and short-term dynamics (towards the stationary equilibrium) which bring entrepreneurs towards the stationary equilibrium. Our analysis rests on a distinction between the aggregate demand and the global expenditure functions. We also distinguish between two modes of price setting—ex ante price setting by entrepreneurs, and ex post price setting by the market.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 21 (2009)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CRPE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CRPE20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- H. Vandenborre, 1958. "An Integration Of Employment Economics Within The Keynesian Theory Of Money Flows," Oxford Economic Papers, Oxford University Press, vol. 10(2), pages 205-219.
- 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.
- Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
- Kregel, J A, 1976. "Economic Methodology in the Face of Uncertainty: The Modelling Methods of Keynes and the Post-Keynesians," Economic Journal, Royal Economic Society, vol. 86(342), pages 209-25, June.
- John King, 1993.
"Aggregate Supply and Demand Analysis Since Keynes: A Partial History,"
1993.16, School of Economics, La Trobe University.
- J. E. King, 1994. "Aggregate Supply and Demand Analysis since Keynes: A Partial History," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(1), pages 3-31, October.
When requesting a correction, please mention this item's handle: RePEc:taf:revpoe:v:21:y:2009:i:1:p:1-22. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.