The Aggregate Supply Function

Abstract

John Maynard Keynes wrote The General Theory (1936) in order to show that Say’s Law, where (aggregate) supply created its own (aggregate) demand, was not applicable to a monetary, production economy. In a Say’s Law world, the aggregate demand function would be coincident with the aggregate supply function so that ‘effective demand, instead of having a unique equilibrium value, in an infinite range of values all equally admissible; and the amount of employment is indeterminate except in so far as the marginal disutility of labour sets an upper limit’ (Keynes, 1936, p. 26). In other words, Say’s Law assumes there is no barrier to the economy obtaining, in the long run, a full employment output level.