Effective demand and short-term adjustments in the General Theory

Olivier Allain ()

Post-Print from HAL

Abstract: Keynes's principle of effective demand constitutes a pillar for Post Keynesian theories. But Keynes's presentation remains difficult to interpret, mainly because the aggregate demand function is based on entrepreneurs' expectations. The problem is, then, to demonstrate how these entrepreneurs (whose only concern is making profits) are led to generate the effective demand (which partially results from the consumers' and investors' behaviour). Previous studies by authors such as Weintraub and Davidson highlight the trial-and-error procedure here involved. But since their analyses are not built on a precise accounting of monetary flows, they fail to demonstrate formally the coherence of the whole adjustment process. The aim of this article is to provide such a formal demonstration. We thus concentrate on verifying how the General Theory constitutes a coherent framework to analyse temporary equilibriums (at the end of every elementary period) and short-term dynamics (towards the stationary equilibrium) which bring entrepreneurs towards the stationary equilibrium. Our analysis rests on a distinction between the aggregate demand and the global expenditure functions. We also distinguish between two modes of price setting--ex ante price setting by entrepreneurs, and ex post price setting by the market

Keywords: effective demand; short-term expectations; macroeconomics; General Theory; Keynesian economics (search for similar items in EconPapers)
Date: 2009-01
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Published in Review of Political Economy, 2009, 21 (1), pp.1-22. ⟨10.1080/09538250802516917⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Effective demand and short-term adjustments in the General Theory (2006)
Working Paper: Effective demand and short-term adjustments in the General Theory (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00345891

DOI: 10.1080/09538250802516917

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().