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Keynes's principle of effective demand reconsidered: The core of of a heterodox post-Keynesian paradigm, or a fundamentalist Keynesian concept that should be abandoned?

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  • Heise, Arne

Abstract

Keynes's Principle of Effective Demand is widely recognized not only as a major theoretical innovation but also as one of the core concepts uniting various post-Keynesian strands. However, Keynes's own treatment of the Principle of Effective Demand - known as the Z/D model and identified by himself as central to his attempt to fundamentally refute Say's Law - has been ignored or even outright rejected by many post-Keynesians on the grounds that it remains too deeply rooted in mainstream economics. This paper addresses such criticism by emphasizing that any evaluation of the Z/D model must take into account the paradigmatic shift Keynes sought to initiate.

Suggested Citation

  • Heise, Arne, 2025. "Keynes's principle of effective demand reconsidered: The core of of a heterodox post-Keynesian paradigm, or a fundamentalist Keynesian concept that should be abandoned?," ZÖSS-Discussion Papers 119, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    • Handle: RePEc:zbw:cessdp:321891
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    References listed on IDEAS

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    1. Paul Davidson, 1994. "Post Keynesian Macroeconomic Theory," Books, Edward Elgar Publishing, number 124.
    2. Paul Davidson, 2001. "The Principle of Effective Demand: Another View," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(3), pages 391-409, March.
    3. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, December.
    4. Rogério Arthmar & Michael Emmett Brady, 2009. "Patinkin, Keynes and the Z curve," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 17(3), pages 127-146.
    5. Paul Davidson, 2007. "There Are Major Differences between Kalecki’s Theory of Employment and Keynes’s General Theory of Employment, Interest, and Money," Palgrave Macmillan Books, in: Interpreting Keynes for the 21st Century, chapter 16, pages 169-189, Palgrave Macmillan.
    6. Don Patinkin, 1978. "Keynes’ Aggregate Supply Function: A Plea for Common Sense1," History of Political Economy, Duke University Press, vol. 10(4), pages 577-596, Winter.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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