Edited by Louis-Philippe Rochon and Sergio Rossi
Chapter 9: The principle of effective demand and the state of post-Keynesian monetary economics
This chapter provides a definition of the principle of effective demand that is consistent with The General Theory and applies it to illustrate Keynes’s claim for the existence of long-period unemployment equilibrium and as the basis for his policy proposals. The principle of effective demand is then applied to illustrate that although some post-Keynesian models incorporate the endogeneity and non-neutrality of money, these models do not capture the properties of the principle of effective demand, particularly the distinction between the rate of interest and the marginal efficiency of capital. From this perspective the endogeneity of money is an implication of Keynes’s proposal to gain control of the rate of interest by nationalizing the Bank of England.
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