The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Effective Demand

  • J. A. Kregel
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_498

Abstract

By ‘effective demand’ Keynes meant the forces determining changes in the scale of output and employment as a whole. It was intended to replace Say’s Law. For Keynes, since entrepreneurs maximized monetary returns, not employment or physical output, there was no reason why their investment decisions should lead to an equilibrium at full employment. Since this account permitted any level of employment to emerge as a stable equilibrium, including full employment, it is more general than the classical Say’s Law position, in which the only stable equilibrium was the limit set by full employment as given in the labour market.

Keywords

Effective demand Excess supply Full employment equilibrium Gold Hume, D. Liquidity preference Malthus, T. R. Marginal efficiency of capital Mercantilism Mill, J. S. Multiplier Natural price Natural rate and market rate of interest Propensity to consume Quantity theory of money Rate of interest Saving and investment Say’s Law Smith, A. Subjective theory of value Supply and demand Velocity of circulation 

JEL Classifications

E12 
This is a preview of subscription content, log in to check access.

Bibliography

  1. Keynes, J.M. 1930. A treatise on money. Reprinted in Keynes (1971).Google Scholar
  2. Keynes, J.M. 1934a. Letter to R.F. Kahn, 13 April. Reprinted in Keynes (1973b).Google Scholar
  3. Keynes, J.M. 1934b. Letter to P. Sraffa, undated. Reprinted in Keynes (1979).Google Scholar
  4. Keynes, J.M. 1934c. Poverty in plenty: Is the economic system self-adjusting? Reprinted in Keynes (1973b).Google Scholar
  5. Keynes, J.M. 1936a. The general theory of employment, interest and money. Reprinted in Keynes (1973a).Google Scholar
  6. Keynes, J.M. 1936b. Letter to A. Lerner, 16 June. Reprinted in Keynes (1979).Google Scholar
  7. Keynes, J.M. 1936c. Letter to R.F. Harrod, 30 August. Reprinted in Keynes (1973c).Google Scholar
  8. Keynes, J.M. 1937a. The theory of the rate of interest. Reprinted in Keynes (1973c).Google Scholar
  9. Keynes, J.M. 1937b. Alternative theories of the rate of interest. Reprinted in Keynes (1973c).Google Scholar
  10. Keynes, J.M. 1971–83. The collected writings of John Maynard Keynes, ed. D. Moggridge. London: Macmillan for the Royal Economic Society: 1971. Vols. 5 and 6. A treatise on money (1930). 1973a. Vol. 7. The general theory of employment, interest and money (1936). 1973b. Vol. 13. The general theory and after: Part I – preparation. 1973c. Vol. 14. The general theory and after: Part II – defence and development. 1979. Vol. 29. The general theory and after – a supplement.Google Scholar
  11. Malthus, T.M. 1821. Letter from Malthus to Ricardo, 7 July. Reprinted in Ricardo (1952), 9–10.Google Scholar
  12. Mill, J.S. 1874. On the influence of consumption on production. Essays on some unsettled questions of political economy, 2nd ed, reprinted Clifton, ed J.S. Mill. Clifton: A.M. Kelley, 1974.Google Scholar
  13. Ricardo, D. 1952. Works and correspondence of David Ricardo, vol. 9, ed. P. Sraffa with the collaboration of M. Dobb. Cambridge: Cambridge University Press.Google Scholar
  14. Say, J.B. 1855. A treatise on political economy, 6 American ed. Philadelphia: J.B. Lippincott.Google Scholar
  15. Smith, A. 1776. An inquiry into the nature and causes of the wealth of nations. Oxford: Oxford University Press, 1976.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • J. A. Kregel
    • 1
  1. 1.