A reply to Amitava Dutt: the role of aggregate demand in the long run

Abstract

In an article in this journal, Amitava Dutt comments on our 1999 paper, ‘Being Keynesian in the Short Term and Classical in the Long Term: The Traverse to Classical Long-term Equilibrium’, contending that aggregate demand may affect the long-term equilibrium. We agree to some extent but contend that these mechanisms do not question the fundamental difference between the classical-Marxian perspective (in which u gravitates in the long term around uˉuˉ ) and the post-Keynesian perspective (in which the long-term equilibrium position of u depends on the level of aggregate demand). The basic controversy harks back to Harrod’s investment function, in which the only long-term equilibrium is u = uˉuˉ . We solve the problem of Harrodian instability in reference to the action of monetary authorities and governments. Dutt’s defence of the post-Keynesian investment function is unconvincing.