Effective demand: Securing the foundations - A symposium

By Olivier Allain, Jochen Hartwig, Mark Hayes

PKES Working Paper 1302

April 2013

This Symposium consists of individual comments by three authors on papers previously published by the other two (Allain, 2009, Hartwig, 2007 and Hayes, 2007) on the topic of Keynes’s principle of effective demand as set out in The General Theory. The Symposium includes updated versions of PKSG working papers 1210, 1211 and 1212 together with an introduction by all three authors. As Allain puts it, there is a closure problem, in our understanding if not in The General Theory itself. Allain’s solution is to redefine effective demand so that it becomes the end point of a process of convergence of expectations on outcomes. Hartwig (following Chick, 1992, in particular) requires entrepreneurs to form a view about aggregate demand rather than simply their own industry price. Hayes retains Keynes’s definition of effective demand and price-taking firms but introduces a division of entrepreneurs between employers and dealers which is not explicit in Keynes’s text.

Keywords: Keynes, effective demand, formation of expectations

JEL classification: B22 B31 E12