A dynamic approach to the theory of effective demand

Anwar Shaikh ()

Brazilian Journal of Political Economy, 1989, vol. 9, issue 3, 433-453

Abstract: This paper attempts to resituate the theory of effective demand within a dynamicnonequilibrium context. Existing theories of effective demand, which derive fromthe works of Keynes and Kalecki, are generally posed in state equilibrium terms. That is tosay, they serve to define a given level of output which corresponds to the equilibrium pointbetween aggregate demand and supply. We propose to generalize this analysis in three ways.First, we will extend the analysis to encompass a dynamic (i.e. moving) short-run path ofoutput, rather than a merely static level. Second, we will show that his dynamic short-runpath need not imply an equilibrium analysis, since it can arise from either stochasticallysustained cycles or deterministic limit cycles. And third, we will prove that the precedinggeneralization of the theory of effective demand will allow us to solve a long-standing problemin growth theory: namely the puzzle surrounding the apparently intractable instabilityof warranted growth. We will show that the actual path of growth does indeed gravitatearound the warranted path in a cyclical sense. JEL Classification: E12; E32.

Keywords: Economic growth; effective demand (search for similar items in EconPapers)
Date: 1989
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