The principle of effective demand (expected), and the role of demand in Keynes’ general theory

Effective demand was defined by Keynes as that which the entrepreneurexpects at the time he decides to invest. From that decision, all other essential variablesare determined by the model developed in The General Theory, as long as a series of othervariables are considered a given. Keynes’ model, therefore, is situated at the ex-ante moment,without considering autonomous changes in variables that are not investments per se. Theconstruction, the presuppositions and the consequences of the effective demand principleseriously affect the results that can be achieved by its application, due in great part to thecontradictions inherent to Keynes’ treatment of the consumer market and, especially, tothe propensity to consume. In excluding market considerations and variables, the modeldeveloped in The General Theory only partially represents that which occurs in the economyeven when the investment varies, since this is considered an autonomous outlay that doesnot depend on production, employment, income or demand variables that might occur,whether or not they arise from prior investments. JEL classification: B22; E12.