Keynes’ Aggregate Supply Function and the Principle of Effective Demand

The principle of effective demand decomposes in two distinct propositions, one pertaining to the analysis of actual, the other to the analysis of equilibrium states. The authors suggest that Keynes' apparatus of aggregate supply and demand decomposes correspondingly in two pairs of aggregate functions. They thus extend to the supply side a duality which had already been noticed on the demand side. Such an extension leads to a reconsideration of the debate between two conflicting views of the aggregate supply function which originated in Patinkin's contributions. The authors' argument emphasizes the role of aggregation over optimizing producers, and the status of intermediate goods and imperfect competition.