Keynes’s General Theory
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Keynes’s General Theory

Seventy-Five Years Later

Edited by Thomas Cate

This volume, a collection of essays by internationally known experts in the area of the history of economic thought and of the economics of Keynes and macroeconomics in particular, is designed to celebrate the 75th anniversary of the publication of The General Theory.
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Chapter 10: Keynes after Sraffa and Kaldor: Effective Demand, Accumulation and Productivity Growth

Alcino F. Camara-Neto and Matías Vernengo


Alcino F. Camara-Neto and Matías Vernengo INTRODUCTION One of the most controversial propositions in macroeconomics is that the economy is driven by demand. In The General Theory, Keynes clearly argued that the system would fluctuate in the long run around a position considerably below full employment. In other words, he believed that the economy would settle below full employment, and that lack of demand, rather than a supply constraint, was the main cause for underemployment equilibrium. Some orthodox authors would deny that in all circumstances, but the conventional wisdom seems to accept that, whereas the proposition is correct in the short run, it cannot be taken seriously in the long run. In the long run, the supply constraint is inexorable. It is particularly problematic that the conventional reading of Keynes assumes that unemployment can only result from some type of imperfection, typically some sort of price rigidity be that in the market for goods or in the so-called factor markets. Keynes correctly noted that only by abandoning the presupposition of a natural rate of interest would it be possible to establish his unemployment equilibrium in the long run. Piero Sraffa’s critique of the marginalist theory of capital proved an essential piece of the argument against the natural rate of interest. Yet, even after dealing with the question of unemployment equilibrium in the long run, Keynes’s theory of effective demand did not contemplate the process of accumulation. Nicholas Kaldor was the central author extending the principle of effective demand to...

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