The Marshallian Core of the General Theory

The account of the principle of effective demand illustrated by Keynes in Chapter III of the General Theory of Employment, Interest and Money has given rise, ever since the publication of Keynes’s work, to many attempts to discover the microeconomic foundations of the two basic relationships which underlie this principle: the aggregate supply and demand functions. Initially the interest of commentators was concentrated mainly on the aggregate supply function (Hawtrey, 1954; de Jong, 1954; Wells, 1960; Marthy, 1961; Patinkin, 1965, 1978; Tarshis, 1979). Subsequently, after isolated anticipations of the problem (Weintraub, 1957), there has been a growing realisation that the main ambiguities and difficulties of interpretation concern the aggregate demand function (Kregel, 1980; Parrinello, 1980; Casarosa, 1981; Asimakopulos, 1982, 1983).