Effective Demand
Post Keynesians claim that the foundation of macroeconomic theory is the principle of effective demand, presented by Keynes.1 The idea is fairly old compared to other fiscal and monetary schools, but the term itself was used by Eichner and Kregel.2
According to Keynes the amount of employment is a function of expected earnings under a given state of technology, resource and factor costs, and the level of employment.3 At the firm level the entrepreneur seeks to “maximize the excess of the proceeds over the factor cost.” To determine the output level that maximizes profit Keynes proceeds by defining both aggregate supply and aggregate demand as functions of employment. He focuses on the “proceeds” of output ...
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