The critique of Say’s Law and the principle of effective demand are at the core of Keynes’s General Theory, which represents “primarily a study of the forces which determine changes in the scale of output and employment as a whole” (Keynes 1936, p. XVI). Keynes then immediately adds “that money enters into the economic scheme in an essential and peculiar manner” (Keynes 1936, p. XVI).

Since the publication of The General Theory, the relationship between money and the principle of effective demand has been the subject of ongoing studies. Keynesian economists have identified at least three different ways to explain this relationship. The first explanation refers to the liquidity preference theory. The second explanation is based on the idea that aggregate demand can fall below the level needed to grant full employment due to the accumulation of a kind of money that is not produced by labor. Finally, post-Keynesian scholars explain the monetary nature of the principle of effective demand through the endogenous money theory.

The first aim of the paper, to which the first part  is devoted, is to highlight the limits of these three explanations of the relationship between money and the principle of effective demand. The second aim  is to present a more meaningful explanation of the relationship between money and the principle of effective demand. In the second part of the paper it will be shown that Schumpeter’s analysis of the role of bank money in a capitalist economy allows the elaboration of a meaningful  explanation of the monetary nature of the principle of effective demand.