Microfoundations of
Effective Demand
Tae-Hee Jo
University of Missouri - Kansas City
December 2007
Abstract
The objective of the dissertation is to delineate the microfoundations
of effective demand from an Institutionalist and Post Keynesian
perspective. To this end, three themes are organically and sequentially
structured. First, the methodology of heterodox microfoundations is
established in order to overcome fallacious neoclassical
microfoundations and to provide realistic foundations for the analysis
of a monetary production economy by linking micro- and macro-reality.
In this context, Veblen's micro-macro synthetic framework is examined
to support the methodological ground for heterodox microfoundations.
Second, the theory of the business enterprise is investigated with the
emphasis on pricing and investment mechanisms of the business
enterprise. The microfoundations of the business enterprise shed light
on the elaboration of the principle of effective demand in a
micro-macro synthetic manner. Finally, it is argued that the structure
of economy represented by the input-output table and the causal
mechanisms driven by households, business enterprises, and the State
are to be combined so as to better analyze the generation of and the
changes in output, employment, and income. As a result, the
microfoundations of effective demand enhance the explanatory power of
the principle of effective demand.