Abstract
John Maynard Keynes wrote The General Theory (1936) in order to show that Say’s Law, where (aggregate) supply created its own (aggregate) demand, was not applicable to a monetary, production economy. In a Say’s Law world, the aggregate demand function would be coincident with the aggregate supply function so that ‘effective demand, instead of having a unique equilibrium value, is an infinite range of values all equally admissible; and the amount of employment is indeterminate except in so far as the marginal disutility of labour sets an upper limit’ (Keynes 1936, p. 26). In other words, Say’s Law assumes there is no barrier to the economy obtaining, in the long run, a full employment output level.
This chapter was originally published in The New Palgrave: A Dictionary of Economics, 1st edition, 1987. Edited by John Eatwell, Murray Milgate and Peter Newman
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Davidson, P. (1987). Aggregate Supply Function. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_587-1
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DOI: https://doi.org/10.1057/978-1-349-95121-5_587-1
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