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Effective demand and short-term adjustments in the General Theory
[La demande effective et les ajustements de court terme dans la théorie générale]

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  • Olivier Allain

    (UPD5 - Université Paris Descartes - Paris 5, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Keynes' principle of effective demand constitutes a pillar for Post Keynesians theories. But Keynes' 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 produce the effective demand (which partially results from the consumers' and investors' behaviour). Previous studies by authors like Weintraub or Davidson highlight the trial and error procedure here at stake. However, since their analyses are not built on a precise accounting of monetary flows, they fail to formally demonstrate the coherence of the whole adjustment process. The aim of this article is to provide such a formal demonstration. We thus concentrate on the General Theory to verify how it constitutes a coherent framework to analyse temporary equilibriums (at the end of every elementary period) and short-term dynamics which bring the economy towards the stationary equilibrium.

Suggested Citation

  • Olivier Allain, 2006. "Effective demand and short-term adjustments in the General Theory [La demande effective et les ajustements de court terme dans la théorie générale]," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00112440, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00112440
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00112440
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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