Effective Demand: Securing the Foundations

Jochen Hartwig

Review of Political Economy, 2013, vol. 25, issue 4, 672-678

Abstract: This paper is one of three contributions to a symposium commenting on papers previously published by the other authors. I basically agree with Allain's (2009) reconstruction of Keynes's model of effective demand from Chapter 3 of The General Theory , except that I think that entrepreneurs take the overall economic situation into account when forming expectations as to how much demand will be forthcoming to them. I also agree with Hayes (2007a) on the most important--and most controversial--issues surrounding the principle of effective demand. Some disagreement remains on the merits of the 'Swedish' method of comparing ex ante expectations with ex post results and on the 'nature' of the equilibrium represented by the point of effective demand: for Hayes, it is a market equilibrium, while I regard it to be an expectational equilibrium in the minds of entrepreneurs.

Date: 2013
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DOI: 10.1080/09538259.2013.837330

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