I looked at this before and got lost in it as I recall. Found a quote in chapter six of The General Theory:
Furthermore, the effective demand is simply the aggregate income (or proceeds) which the entrepreneurs expect to receive, inclusive of the incomes which they will hand on to other factors of production, from the amount of current employment which they decide to give.
First of all, it depends on entrepreneurs' expectations, which drive them to spend the money to produce the product that, when sold, will generate the income.
Second, the expected income includes the portion of that income which the entrepreneurs will have to fork over to other entrepreneurs. Since that portion is included, and as we are not doing calculations here, I'm going to omit the part about portions of income.
Effective demand is the income entrepreneurs expect to receive from the amount of current employment which they decide to give.
Effective demand is expected income, then. It is the particular expected income that leads to employment.
Effective demand is the demand I expect to see, demand as measured by income, income I get from selling my product, expected income from the employment of N workers.
So the word "effective" refers to what, exactly?
Something has an effect, and something is the effect.
The proposed employment of N men has an expected effect on income. This leads the employer to pick a best-case N. Employment follows. Output and income is generated. Done.
So we have an employer thinking about hiring some guys, as the cause of everything that follows.
Or we have employment as the cause of income. Oh -- but that is Say's law.
Okay. Either way, this is not at all what I thought "effective demand" means. And it's not at all what Adam Smith meant by "effectual demand". I'm sure of that.
Looks like I'm lost again.
I did find something in part two of A multi-sectoral version of the Post-Keynesian growth model (PDF, 26 pages) by Ricardo Azevedo Araujo and Joanílio Rodolpho Teixeira:
Unlike the Neoclassical model, the PKGM considers that neither savings nor technological progress is the variable that drives the growth process. The rationale is that investment is determined essentially by the availability of credit in the financial sector as well as the ‘animal spirits’. Once investment is made effective demand determines output which in turns determines savings.
With a comma? Like this:
Once investment is made, effective demand determines output which in turns determines savings.
Here, the employer goes with his gut, giving N workers employment, whereupon demand is generated -- demand, measured by income -- and yadda yadda savings.
It's the decision to employ N workers that has the effect. I guess that's what Keynes was saying. But again, Say's law follows.
Or maybe the comma goes like this:
Once investment is made effective, demand determines output which in turns determines savings.
And then I got nothin'.