Aggregate demand 2-3, 7,11 role

The first main purpose of this book is to formalize the role of aggregate demand as a constraint on expanded reproduction. I will develop an analytical model which explores the conditions under which profits can be realized in the reproduction schema. This approach is in keeping with the spirit of Dillard s (1984 425) statement that Marx s economics would be strengthened by a more formal treatment of the theory of effective demand. ... 

In the universities, a mathematical strand of supply-side Marxism has evolved that is closer to mainstream general equilibrium theory. Notably, for Morishima (1973 105), Marx s models are very similar to Walras in many aspects Marx s scheme of simple reproduction, or reproduction on the same scale, corresponds to Walras static general equilibrium system of production... Aggregate demand has hardly any role to play in this microeconomic approach. 

The book is thus a series of steps, from the multiplier and its role in the reproduction schema in Chapter 2 to the Kalecki principle in Chapter 3 and a detailed consideration of the circuit of money in Chapter 4. Having built up a macro monetary model of the reproduction schema, in which both money and aggregate demand are featured, Chapter 5 derives the Domar growth model from these analytical foundations. The relevance of this growth model to Marxian theories of crisis is explored and further developed in Chapter 6. 

This demonstrates that the scalar Keynesian multiplier relationship can in principle be derived from a two-sector model. As it stands, however, since (2.14) is defined using net income, no account is taken of the constituent role of constant capital in the production process.9 In embracing Keynes to model aggregate demand, a Marxian response is required to the charge that the scalar multiplier falls prey to Smith s dogma. 

The role of Marx s category of surplus value can therefore be identified in a macro scalar multiplier without the restrictive assumption of a one-good model. This scalar multiplier captures the inter-departmental structure of the reproduction schema without constant capital being assumed away. A formal model of aggregate demand in the reproduction schema is developed, which retains the simplicity of the Keynesian multiplier together with Marx s value categories. 

Of particular importance is the role of money in balanced reproduction. For the balance between aggregate demand and supply to be sustained, circuits of money must continuously open and close in successive periods of production. The key question is not just how much money is required for successive circuits to function, but also where does the money come from. Under expanded reproduction, an increasing amount of money is required to service the growing requirements placed upon a capitalist economy. 

An overarching aim of this book is to develop a formal model which captures the role of both aggregate demand and money in the reproduction schema. 

In 1878 Karl Marx developed the reproduction schema his model of how total capital is produced and reproduced. This is thought to be the first two-sector economic model ever constructed. Two key aspects of Marx s writings are widely agreed to be undeveloped the role of aggregate demand and the role of money. This book has as its aim the synthesis of various strands of economic thought in an attempt to understand and clarify the structure of the reproduction schema. This synthesis will challenge prevailing orthodoxies. 

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