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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. 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.
    2. Paul Davidson, 1994. "Post Keynesian Macroeconomic Theory," Books, Edward Elgar Publishing, number 124.
    3. 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.
    4. 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.
    5. 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.
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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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