Effective Demand and Say's Law in Marxist Theory: An Evolutionary Perspective

Tomas Rotta


In this paper I theorize the roles of effective demand and Say’s law in the Marxist theory of exploitation and accumulation. I claim that an exogenous rate of exploitation, or an exogenous functional distribution of income between profits and wages, implies deploying Say’s law, which leads profit rates not to equalize across sectors. Marx’s own procedure in Capital III of simultaneously supposing an exogenous rate of exploitation and profit rate equalization was therefore logically inconsistent. Once Keynes’ principle of effective demand is introduced, the rate of exploitation and hence the distribution of income between wages and profits become endogenous to aggregate demand. Profit rates then do equalize across sectors and prices of production can function as gravitational centers for market prices in a competitive economy. If we aim at developing a theory that is both empirically relevant and logically consistent, Marxist scholars must therefore drop Say’s law and incorporate Keynes’ principle of effective demand for a proper understanding of how capital accumulation determines the rate of exploitation, the functional distribution of income, and the equalization of profit rates.

Marxist Accumulation Theory, Exploitation, Income Distribution, Keynes’ Effective Demand, Say’s Law