Demand Management

The expression ‘demand management’ came into general use after World War II. The idea has its roots in the General Theory of Employment, Interest and Money (1936), in which Keynes had argued that in capitalist economies the aggregate demand for goods and services could fall short of the capacity of the economy to produce, with resultant unemployment. A deficiency of demand could be made good by governments increasing their expenditure or lowering taxes, or by the monetary authorities lowering interest rates to stimulate investment. Contrariwise, if there was excess demand, fiscal and monetary policy could be used in a restrictive manner. In the United States, ‘demand management’ never wholly displaced the term ‘stabilization policy’.