Notes on Consumption, Investment and Effective Demand: I

The problem considered in Part I of these Notes is addressed here in terms of the ‘monetary’ analysis of Keynes’s General Theory and the subsequent controversy. Wicksell’s theory of the price level is used to show how traditional theories link their ‘real’ analysis to the monetary rate of interest. It is then argued that Keynes’s conclusions on aggregate demand rely on his critique of orthodox interest theory (and not on money wage rigidity), scrutiny of whose weaknesses paves the way for a discussion of later attempts to rehabilitate traditional theory. The paper finally arrives at the issues of ‘real’ theory to which the differences between Keynes’s conclusions and the orthodox ones can be traced, referring back to the results of the analysis in Part I.