Post Keynesianism and MMT: Role of Demand
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Introduction
"The distinctive and unifying feature of Post Keynesian economics is the principle of effective demand. Keynes set out his Marshallian version in Chapter 3 of his General Theory of Employment, Interest and Money while Kalecki independently developed another version on Marxist lines. The theoretical differences need not detain us. The key implication of the principle of effective demand is that, contrary to what students are now taught, demand matters in the long run as well as the short. In particular, the level of employment and economic activity, both in the short and in the long run, is determined by demand, by the monetary configuration of our economic system. This has nothing to do with sticky prices, wages or other rigidities. Indeed a virtue of Keynes’s Marshallian approach to effective demand is that it scotches on its own terms the mainstream claim that competition will lead to full employment. By full employment they mean of course the so-called natural rate determined by the supply side.
"The principle of effective demand leads to a quite different perspective on economic fluctuations. The economy is not like a life-boat, buffetted by the waves yet always righting itself. The very terms ‘business cycle’ and ‘stabilisation’ are loaded and imaginary trends are easily constructed. The Post Keynesian perspective is that the long run is simply a series of short runs, certainly the economy fluctuates but there is no automatic tendency towards equilibrium, in level or trend."
Excerpted from M. G. Hayes, The Post Keynesian Difference (October 2010)
