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Income InequalityWhy It Matters and Why Most Economists Didn't Notice$
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Matthew P Drennan

Print publication date: 2015

Print ISBN-13: 9780300209587

Published to Yale Scholarship Online: May 2016

DOI: 10.12987/yale/9780300209587.001.0001

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Consumption Theory and Its Critics

Consumption Theory and Its Critics

Chapter:
(p.73) V Consumption Theory and Its Critics
Source:
Income Inequality
Author(s):

Matthew P. Drennan

Publisher:
Yale University Press
DOI:10.12987/yale/9780300209587.003.0006

Traces the development of the economic theory of consumption from Malthus and Ricardo to Keynes and Milton Friedman. The arguments of critics of the prevailing Friedman–Modigliani–Brumberg paradigm are presented, leading to the outline of a theory to replace it. In the existing paradigm, there is no place for income distribution. Consequently, public policy analysis of the Great Recession leaves out of consideration a major cause of the Great Recession and the slow recovery.

Keywords:   Consumption, Pareto efficiency, Permanent income, Say’s law, Effective demand, Average propensity to consume, Behavioral economics

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