David Colander concludes his latest contribution with: "As usual, issues 
are more complicated that they appear on the surface."  I think only if 
one makes them unnecessarily complicated. 

In the first place, I don't think his attempt to switch Keynes's 
discussion of effective demand to "effective supply" is meaningful or 
helpful.  As Keynes himself writes: "The value D at the point of the 
aggregate demand function, where it is intersected by the aggregate 
supply function, [is] called  /the effective demand/" (/GT/, 25; Italics 
original).   Keynes also says, "the /effective demand/ is simply the 
aggregate income (or proceeds)  which the entrepreneurs expect to 
receive, ..., from the amount of current employment which they decide to 
give" (/GT/, 55; Italics original).  So, although Keynes did not draw AS 
and AD curves with P on the y-axis, I think it is a reasonable 
interpretation of his argument to do so.

Now to understand the classical explanation embodied in Say's Law of 
markets, with which Keynes had great difficulty and some of his modern 
followers continue to have, one just has to keep two things clearly in 
mind.  One, that money is currency, not modern M1 or M2, etc.  Two, that 
saving is not hoarding; indeed, hoarding contracts savings.  Then, with 
respect to the Great Depression, one interprets the contraction in the 
financial markets, especially following the failure of the Bank of the 
United States and its  subsequent contagion, as a significant flight to 
cash on the part of the public as well as banks.  Disposable incomes are 
spent to hold cash balances, purchase financial assets (savings), and on 
consumption.  Thus, a flight to cash must mean a reduction in the demand 
for financial assets (including bank deposits) and the demand for goods 
and services.  This is the legitimate sense in which the contraction in 
spending during the Great Depression may be described as contraction of 
aggregate demand (AD).

But the contraction was matched by an excess demand for cash, to which 
the Fed, because of its rules of operations at the time, including 
backing its notes by 40% in gold, failed to respond adequately.  Thus, 
whiles demand deposits declined by $8 billion between 1930 and 1933 
(interpret that as increased demand for cash by deposit holders), the 
Fed expanded its notes by only $1 billion (from 4 to 5 billion); see 
Fisher (1935).  It's unfortunate that Milton Friedman and Anna Scwartz 
have concentrated attention on M2 and succeeded in persuading most 
analysts that the Fed contracted the "money supply."  But what 
legitimately must be said is that the Fed did not expand its notes 
enough to meet the enlarged demand both by the non-bank public and the 
banks (economic or excess reserves).   Besides, France was withdrawing 
some of its gold reserves with the US, and not expanding its own notes 
to match according to the "rules" of the Gold Standard.

With the above understanding, one then reads the classics explaining 
that there could not be a glut of all commodities at the same time, 
keeping in mind that money is itself a commodity.  J.S. Mill's 
explanations do the job very well. "To suppose that the markets for all 
commodities could ... be overstocked, involves the absurdity that 
commodities may fall in value relatively to themselves; or that, of two 
commodities, each can fall relatively to the other ... A want of market 
for one article may arise from excessive production of that article; but 
when commodities in general become unsaleable, it is from a very 
different cause; there cannot be excessive production of commodities in 
general.  (Mill 1874, 72B73).  "Besides, money is a commodity; and if 
all commodities are supposed to be doubled in quantity, we must suppose 
money to be doubled too, and then prices would no more fall than values 
would@ (Mill /Works/, 3: 572).  And, "In order to render the argument 
for the impossibility of an excess of all commodities applicable to the 
case in which a circulating medium is employed, /money must itself be 
considered as a commodity/.  It must, undoubtedly, be admitted that 
there cannot be an excess of all other commodities, and an excess of 
money at the same time@ (Mill 1874, 71; emphasis added).  In a modern 
economy, a central bank produces the money (currency).  (I explain this 
argument in detail elsewhere, but I've mentioned those references often 
enough.) 

Thus, one doesn't need the apparatus of AS-AD to interpret the Great 
Depression.  The classical Quantity Theory of Money does well enough, 
especially given the theoretical problems with deriving the AD curve.  
If one thought the contraction was a questions of reduced investment 
spending, without linking that to reduced supply of savings or loanable 
funds (because of the increased desire to hoard cash), one would then 
chase after such fables as "animal spirits."  One also would have 
trouble dealing effectively with "animal spirits."  If one thought the 
problem could be solved with government deficit spending to increase AD 
= C + I + G, one couldn't succeed unless the deficit were funded by 
newly printed money; which is the same thing as increasing the quantity 
of currency to meet its increased demand, as the classical theory 
explains. 

Once again, remember that Keynes resorted to the AS-AD explanation 
because he had difficulties with both the Quantity Theory of Money and 
Say's Law.  With a clear understanding of those two principles, we 
don't  have to follow Keynes's explanation. 

James Ahiakpor