Research On The Evolution And Development Of The Theory Of Effective Demand

The U.S. sub prime mortgage crisis broke out at August 2007, sparking the largest global crisis since the new century. The world economy has been hit in this process. This real economy of our country has also suffered a tremendous impact in this crisis. The sudden drop in external demand caused domestic enterprises reliance heavy on exports closed down, unemployment increased rapidly, a variety of issues in the economy had been prominent. Under the decisive measures of the government taking, the rebound of domestic economy in first, maintained a good momentum of economic growth. At present, although International economic environment improved accordingly, but still "surging undercurrent", China's economy is still facing many difficulties and challenges.The financial crisis and the economic crisis make us realized clearly that model of economic relying on external demand driven growth no longer stand when the crisis in the world broke out, the economic development must be based on the domestic demand, but the demand of domestic investment and consumption has been serious imbalance for a long time. Our government adjustment development strategy very timely combined the short-term control policy and long-term development policy together; adhere to the strategy of expanding domestic demand and to fully tap the enormous potential of China's domestic demand, especially expanding domestic consumption demand witch is shortage of in the long-term. At the same time, we can see the outbreak of the financial crisis appears to be caused by non-standard control of the financial system, but in reality is a result of the false demand for the inevitable excessive expansion. Thus, effective demand, once again, become the focus of economic development.The evolution and development of the theory of effective demand is the central content of this paper. Firstly, the paper will reviewed the theory of effective demand comprehensively and systematically in two different dimensions. Horizontally, this paper will analyze individualist school, governmental intervention school and Marxist theory of effective demand respectively in detail. Moreover, the paper will talk about the different schools of economists'thoughts or criticisms on the development of the theory of effective demand, so that the development of the theory of effective demand can be interpreted clearly. Vertically, the paper will examine the origin of the theory of effective demand and its development and evolution in different historical periods in a detailed way, so as to summarize the contents of the theory of effective demand. Secondly, by reviewing the theory of effective demand, the paper will utilize the tools of the theory to analyze the social economy; that is to say, the paper will focus on the relationship between the effective demand and economic performance in order to enhance the study of the operation of effective demand in China's economy. Thirdly, the paper reviews and comments the problems of insufficient effective demand during China's transition in a brief way. By analyzing the issues of the false demand in the financial and economic crisis, the paper points out that the situation of China's overheating demand is caused by the excessive expansion of false demand, while the effective social demand is still insufficient. Finally, by summarizing the Western theory of effective demand and the issues of lack of effective demand in China's transition, the paper can draw several important conclusions:First of all, the effective demand has an important role in stabilizing the economy, especially in expanding domestic demand as the main task of China's economy. It is essential to be cautious to the excessive expansion of false demand and pay more attention to the effective demand, especially to the consumers'demand, which is the steady and powerful guarantee for the healthy operation of the social economy.Second, on the debate between the individualist school and the governmental intervention school for effective demand, we must adhere to the unity of state intervention and market mechanisms. On the one hand, we must perfect the market economy to fully play its role in allocating resources. On the other hand, the government needs to use fiscal and monetary policy prudently in the regulation of the economy to correct market distortions and to deal with the market failure for preventing the economic ups and downs.Third, it is necessary to guide our practice of expanding domestic demand with the Marxist theory of effective demand. In the current financial and economic crisis, neither the individualist school nor the governmental intervention school can explain the real causes of the crisis in a reasonable way, while the Marxist economics theory of effective demand can explore the nature of the crisis and provide a brighter direction to overcome the crisis. In summary, this paper argues that only based on domestic effective demand can ensure the effective domestic demand fully realization, accelerate formation the situation that the consumption, investment and exports driven the growth in economic, to ensure our economy forward ahead in a capricious international economic environment.