Quantity Theory, Say’s Law and Effective Demand in Money Theories

The idea that effective demand is closely connected with money supply has emerged a number of times in the history of economic thought, within approaches differing in origin and formulation. In particular, we analyse Lange and Patinkin’s theses and those of Luxemburg and the money circuit theorists. The principal thesis proposed is that the idea is closely bound up with the more or less explicit assumption of two fundamental hypotheses. The first is that Say’s law or, more generally, Walras’ law no longer applies, or in any case that there is no form of complementarity in the exchanges of goods and services within the social product. The second hypothesis is that money is a particular “good”. We stress that this theoretical paradigm is incompatible not only with money as a store of value, but also with commodity money or endogenous money supplied strictly in connection with the credit cycle.