A reply to Amitava Dutt: the role of aggregate demand in the long run

Gérard Duménil and Dominique Lévy

Cambridge Journal of Economics, 2014, vol. 38, issue 5, 1285-1292

Abstract: In an article in this journal, Amitava Dutt comments on our 1999 paper, ‘Being Keynesian in the Short Term and Classical in the Long Term: The Traverse to Classical Long-term Equilibrium’, contending that aggregate demand may affect the long-term equilibrium. We agree to some extent but contend that these mechanisms do not question the fundamental difference between the classical-Marxian perspective (in which u gravitates in the long term around uˉuˉ ) and the post-Keynesian perspective (in which the long-term equilibrium position of u depends on the level of aggregate demand). The basic controversy harks back to Harrod’s investment function, in which the only long-term equilibrium is u = uˉuˉ . We solve the problem of Harrodian instability in reference to the action of monetary authorities and governments. Dutt’s defence of the post-Keynesian investment function is unconvincing.

Date: 2014
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