A Reconsideration of the Theory of Effective Demand

Abstract

THE American Economic Association is performing a useful function in selecting leading articles on economic theory for publication in book form by the Blakiston Company. These volumes are likely to be most convenient for those who are attempting, after the long interval of the war, to refresh their memory with regard to pre-war discussions without embarking on a tedious search through old periodicals. Much depends, of course, upon the choice of articles and there are some unfortunate omissions from the present volume.' In particular the writings of Mr. Hicks have been neglected and the later Keynesians, such as Mr. Kaldor and Mr. Kalecki, are not represented.2 Agreement as to the best selection may be regarded, however, as unattainable and it need scarcely be said, in view of the membership of the selection committee, that the choice has on the whole been most judicious. Furthermore, the long bibliography at the end is of considerable value in itself. Clearly it is impossible to review a book of this sort but after reflecting upon its contents it may be appropriate to take up one of the topics discussed, and try to examine the position reached. The most suitable for this treatment appears to be the basic problem of variations in the supply of purchasing power. How is it possible for aggregate expenditure to expand and contract in response to variations in investment demand ? What determines the rate of interest, and why does the pricing system prove impotent by itself to prevent fluctuations in total outlay