An Essay on Marxian Economics

By Joan Robinson | Go to book overview

CHAPTER VI
EFFECTIVE DEMAND

So far we have been discussing those parts of Marx's argument which ignore the problem of effective demand -- which treat, as he puts it, of the production of surplus value, as opposed to the realisation of surplus value. But he also provides the elements of a theory of effective demand, and lays the basis for a study of the law of motion of capitalism quite different from the law of the falling tendency of profits.

Orthodox economics used to eliminate the problem of effective demand, and justify the assumption of full employment, by appealing to Say's Law. This so-called law consists in the statement that supply creates its own demand, so that an increase in output always generates a sufficient increase in expenditure to clear the market of the commodities produced. This proposition is restated in a more sophisticated form by Marshall when he writes, "The whole of a man's income is expended in the purchase of services and of commodities. . . . It is a familiar economic axiom that a man purchases labour and commodities with that portion of his income which he saves just as much as he does with that which he is said to spend."1 If this view were correct there could be no problem of a deficiency of money demand for any output that could be produced. Until the orthodox axiom was challenged by Mr. Keynes's theory of employment, it was not questioned by the academic economists. Indeed,

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1
Pure Thoery of Domestic Values, p. 34.

-43-

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An Essay on Marxian Economics
Table of contents

Table of contents

  • Books by Joan Robinson ii
  • Title Page iii
  • Foreword v
  • Contents ix
  • Chapter I - Introduction 1
  • Chapter II - Definitions 6
  • Chapter III - The Labour Theory of Value 10
  • Appendix - Value in a Socialist Economy 23
  • Chapter IV - The Long-Period Theory Of Employment 29
  • Chapter V - The Falling Rate of Profit 35
  • Chapter VI - Effective Demand 43
  • Chapter VII - The Orthodox Theory of Profit 52
  • Chapter VIII - The General Theory Of Employment 63
  • Chapter IX - Imperfect Competition 73
  • Chapter X - Real and Money Wages 82
  • Chapter XI - Dynamic Analysis 92
  • References to "Capital" 96
  • Index 103
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