Effective Demand in the Short Run and in the Long Run

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: Effective Demand in the Short Run and in the Long Run

Author:: Steindl, Josef

Scope:: Typoskript, 10 Blätter, mit zahlreichen handschriftlichen Anmerkungen und Ergänzungen vom Verfasser

Year of publication:: 1990

Source material date:: [vermutlich 1990]

Language:: English

Note:: Typoskript mit geringfügigen Änderungen post mortem (2012) publiziert, ohne Berücksichtigung der handschriftlichen Anmerkungen der vorliegenden Fassung.

Topic:: Growth,cycle and stagnation

JEL Classification:: E11 [General Aggregative Models: Marxian, Sraffian, Kaleckian] E12 [General Aggregative Models: Keynes, Keynesian, Post-Keynesian]

Shelfmark:: S/M.51.4

DOI:: https://doi.org/10.48671/nls.js.AC14446088

/Sin ( N')U EFFECTIVE DEMAND IN THE SHORT AND IN THE LONG RUN I. When effective demand is created by one means or another the beneficial effects on employment in general will show themselves fairly soon (although it may take some time until the demand seeps through the anterior stages of production and further through income and consumption). After a time, however, there appear effects which go in the opposite direction. 1. When the demand is created by investment in productive equipment and plant then new capacity will begin to become operative (unless the equipment merely replaces another one of equally large capacity which is at the same time withdrawn ).By that time,or soon after, the stimulating effects of the outlay on the equipment will have been largely exhausted. The new capacity will absorb effective demand which it will withdraw from other equipment. While the overall level of effective demand will be the '"VW'f ft same as it was before the investment took place it will be spread over a larger total capacity (and presumably the profits will also be so spread ) thus the rate of utilisation will be lower and further investment will be accordingly discouraged. This outcome will depend crucially on the relative amounts of the spending on the investment and the capacity created, in other words on the capital-capacity ratio. For most industrial investment this ratio is probably lower than unity. Moreover the equipment usually will last for a number of years so that a net depressing effect is bound to appear sooner or later. 2. The backlash against an additional effective demand will materialise also if this is generated not by investment but by deficit spending of the government, although the mechanism will be different here. To make it evident we shall assume permanent

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