Post-Keynesian Economics
Post-Keynesian economics is a school of economic thought with its origins in The General Theory of John Maynard Keynes, although its subsequent development was influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor and Paul Davidson. Keynes' biographer Lord Skidelsky writes that the post-Keynesian school has remained closest to the spirit of Keynes' work, particularly in his monetary theory and in rejecting the neutrality of money.
Introduction
Post-Keynesian economists maintain that Keynes' theory was seriously misrepresented by the two other principle Keynesian schools: neo-Keynesian economics which was orthodox in the 1950s and 60s - and by New Keynesian economics, which together with various strands of neoclassical economics has been dominant in mainstream macroeconomics since the 1980s.
Post-Keynesian economics can be seen as an attempt to rebuild economic theory in the light of Keynes's ideas and insights. However even in the early years in the late 1940s post-Keynesians such as Joan Robinson sought to distance themselves from Keynes himself, as well as from the then emergent neo-Keynesianism. Some post-Keynesians took an even more progressive view than Keynes with greater emphases on worker friendly policies and re-distribution. Robinson, Paul Davidson and Hyman Minsky were notable for emphasising the effects on the economy of the practical differences between different types of investments in contrast to Keynes more abstract treatment. A feature of post-Keynesian economics is the principle of effective demand, that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment. Contrary to a view often expressed, the theoretical basis of this market failure is not rigid or sticky prices or wages (as in New Keynesian economics, which is best regarded as a modified form of neoclassical economics[citation needed]).
Many post-Keynesians reject the IS/LM model of John Hicks, which was very influential in neo-Keynesian economics. The positive contribution of post-Keynesian economics has extended beyond the theory of aggregate employment to theories of income distribution, growth, trade and development in which demand plays a key role, whereas in neoclassical economics these are determined by the supply side alone. In the field of monetary theory, post-Keynesian economists were among the first to emphasise that the money supply responds to the demand for bank credit, so that the central bank can choose either the quantity of money or the interest rate but not both at the same time. This view has largely been incorporated into monetary policy, which now targets the interest rate as an instrument, rather than the quantity of money. In the field of finance, Hyman Minsky put forward a theory of financial crisis based on financial fragility, which has recently received renewed attention. Strands There are a number of strands to post-Keynesian theory with different emphases.
Joan Robinson regarded as superior to Keynes’s Michal Kalecki’s theory of effective demand, based on a class division between workers and capitalists and imperfect competition. She also led the critique of the use of aggregate production functions based on homogeneous capital – the Cambridge capital controversy – winning the argument but not the battle. Much of Nicholas Kaldor’s work was based on the ideas of increasing returns to scale, path dependency, and the key differences between the primary and industrial sectors.
Paul Davidson follows Keynes closely in placing time and uncertainty at the centre of theory, from which flow the nature of money and of a monetary economy. Monetary circuit theory, originally developed in continental Europe, places particular emphasis on the distinctive role of money as means of payment. Each of these strands continues to see further development by later generations of economists, although the school of thought has been marginalized within the academic profession. Current work Journals Much post-Keynesian research is published in the Journal of Post Keynesian Economics (founded by Sidney Weintraub and Paul Davidson), the Cambridge Journal of Economics, the Review of Political Economy and the Journal of Economic Issues (JEI). UK There is also a UK academic association, the Post Keynesian Economics Study Group (PKSG). US Kansas City School In America, there is a center of post-Keynesian work at the University of Missouri – Kansas City, dubbed "The Kansas City School", together with the Center for Full Employment and Price Stability, which run a Post Keynesian Conference and Post Keynesian Summer School, together with a group blog, Economic Perspectives from Kansas City. Their research emphasis includes Neo-Chartalism, job guarantee programs, and economic policy.
Major post-Keynesian economists Main article: List of Post-Keynesian economists See also: Category:Post-Keynesian economists Major post-Keynesian economists of the first and second generation after Keynes include: • Victoria Chick • Paul Davidson • Alfred Eichner • Geoff Harcourt • Nicholas Kaldor • Michał Kalecki • Hyman Minsky • Basil Moore • Luigi Pasinetti • Joan Robinson • G. L. S. Shackle • Anthony Thirlwall • Sidney Weintraub • Jan Kregel • L.Randall Wray • Frederic S. Lee • Fernando Cardim de Carvalho Post-Keynesian theories • Job guarantee, from the Kansas City School • Monetary circuit theory, often associated with post-Keynesian economics • Neo-Chartalism, another post-Keynesian theory of money See also • Keynesian economics • New Keynesian economics Notes 1. ^ There is semantic dispute as to whether there should be a hyphen between Post and Keynesian. The American journal of the same name does not use the hyphen despite its grammatical correctness, and the objection to its use dates back to Paul Samuelson's claim to be a Post-Keynesian. However Harcourt 2006 uses the hyphen, following Joan Robinson's original use of the phrase. 2. ^ Skidelsky 2009, p. 42 3. ^ Financial markets, money and the real world, by Paul Davidson, pp. 88–89 4. ^ Hayes 2008 5. ^ Arestis 1996 6. ^ For a general introduction see Holt 2001 7. ^ Kaldor 1980 8. ^ Minsky 1975 9. ^ Robinson 1974 10. ^ Pasinetti 2007 11. ^ Harcourt 2006, Pasinetti 2007 12. ^ Davidson 2007 Post Keynesian Economics (1970s-80s) What is post keynesian economics Thanks to Samuelson's reconciliation, today neoclassical economics is known as microeconomics and Keynesian economics has become largely known as macroeconomics the twin pillars of mainstream or orthodox economic thought. However, because this reconciliation clearly disavowed many of Keynes's original ideas that were not held to be compatible with neoclassical economics, many critics have sought to revive some of them and to combine them with theories of scholars such as Michael Kalecki, Joan Robinson, and Piero Sraffa to form a new school of economic thought known as "post-Keynesian Economics" (see Eicher, 1979). Post-Keynesians are highly concerned with short-term economic growth as induced by aggregate demand and, unlike neo-classical economists, are concerned with real world variables that exist in a very concrete historical situation. For them, the adjustment process of the economy to equilibrium conditions is not so "automatic" as neoclassical economist's claimed because it largely depends on the economic agent's interpretation of both the past and expectations for the future all in the midst of a decision making setting involving complex interdependencies and unforeseen factors. As a result of these beliefs, post-Keynesians essentially deny relevance of conventional equilibrium analysis. Moreover, reliance on the role of uncertainty has created some problems for post-Keynesians because it has made it nearly impossible for them to devise any viable theory for long-term growth. It has further prevented them from developing a formal economic model that they all agree upon. According to Professor J. A. Kregel (1976), one of the most distinguished post-Keynesian economists, "post-Keynesian theory can be viewed as an attempt to analyze various different economic problems, e.g., capital accumulation, income distribution, etc., through the methodology of Keynes." Keynes's methodology, then, was to confront "the analysis of an uncertain world was in terms of alternative specifications about effects of uncertainty and disappointment." Using this approach while adopting theories of both Keynes and Kalecki, post-Keynesians have analyzed the relationship between income distribution and economic growth. One of the most significant conclusions of post-Keynesian economics is that for a given level of investment and an economy at equilibrium where savings equals investment, the lower the capitalist's propensity to save, the higher will be their share of national income and the lower will be the worker's share. This assertion is significant because it contradicts the claim by neoclassical economists that capitalists enjoyed a high income due to the pain that is necessary for them to save. This result of the post-Keynesians is founded in their belief that saving is passively linked to changes in level of income, and investment is highly correlated with capitalists' expectations for the future. If optimistic, investment increases, growth occurs, and capitalists' share of income increases as well. As their income rises, capitalists save more bringing savings back in line to a new level of Keynesian equilibrium where savings and investment equate. What this means is that if capitalists are frugal (i.e. save more), or if they are abstemious (i.e. abstain from consuming), they lower their share of the national income. This, of course, directly violates Nassau Senior's assertion that the high income of capitalists was morally justified by their painful abstinence of personal consumption and willful propensity to reinvest their profits into the growth of capital. Another area where post-Keynesians have divergent economic thought from orthodoxy has to do with their belief in the endogenity of money. For them, post-Keynesians stress the fact that real commodity and labor flows are expressed in the economy as monetary flows. They also assume that money possesses a negligible elasticity of substitution with any other medium of exchange and therefore has the unique capacity to be able to be used by financial institutions as a tool to mitigate the effects of exogenous economic system shocks.
Post-Keynesian economics can be seen as an attempt to rebuild economic theory in the light of Keynes's ideas and insights. However even in the early years in the late 1940s post-Keynesians such as Joan Robinson sought to distance themselves from Keynes himself, as well as from the then emergent neo-Keynesianism. Some post-Keynesians took an even more progressive view than Keynes with greater emphases on worker friendly policies and re-distribution. Robinson, Paul Davidson and Hyman Minsky were notable for emphasising the effects on the economy of the practical differences between different types of investments in contrast to Keynes more abstract treatment. A feature of post-Keynesian economics is the principle of effective demand, that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment. Contrary to a view often expressed, the theoretical basis of this market failure is not rigid or sticky prices or wages (as in New Keynesian economics, which is best regarded as a modified form of neoclassical economics[citation needed]).
Many post-Keynesians reject the IS/LM model of John Hicks, which was very influential in neo-Keynesian economics. The positive contribution of post-Keynesian economics has extended beyond the theory of aggregate employment to theories of income distribution, growth, trade and development in which demand plays a key role, whereas in neoclassical economics these are determined by the supply side alone. In the field of monetary theory, post-Keynesian economists were among the first to emphasise that the money supply responds to the demand for bank credit, so that the central bank can choose either the quantity of money or the interest rate but not both at the same time. This view has largely been incorporated into monetary policy, which now targets the interest rate as an instrument, rather than the quantity of money. In the field of finance, Hyman Minsky put forward a theory of financial crisis based on financial fragility, which has recently received renewed attention. Strands There are a number of strands to post-Keynesian theory with different emphases.
Joan Robinson regarded as superior to Keynes’s Michal Kalecki’s theory of effective demand, based on a class division between workers and capitalists and imperfect competition. She also led the critique of the use of aggregate production functions based on homogeneous capital – the Cambridge capital controversy – winning the argument but not the battle. Much of Nicholas Kaldor’s work was based on the ideas of increasing returns to scale, path dependency, and the key differences between the primary and industrial sectors.
Paul Davidson follows Keynes closely in placing time and uncertainty at the centre of theory, from which flow the nature of money and of a monetary economy. Monetary circuit theory, originally developed in continental Europe, places particular emphasis on the distinctive role of money as means of payment. Each of these strands continues to see further development by later generations of economists, although the school of thought has been marginalized within the academic profession. Current work Journals Much post-Keynesian research is published in the Journal of Post Keynesian Economics (founded by Sidney Weintraub and Paul Davidson), the Cambridge Journal of Economics, the Review of Political Economy and the Journal of Economic Issues (JEI). UK There is also a UK academic association, the Post Keynesian Economics Study Group (PKSG). US Kansas City School In America, there is a center of post-Keynesian work at the University of Missouri – Kansas City, dubbed "The Kansas City School", together with the Center for Full Employment and Price Stability, which run a Post Keynesian Conference and Post Keynesian Summer School, together with a group blog, Economic Perspectives from Kansas City. Their research emphasis includes Neo-Chartalism, job guarantee programs, and economic policy.
Major post-Keynesian economists Main article: List of Post-Keynesian economists See also: Category:Post-Keynesian economists Major post-Keynesian economists of the first and second generation after Keynes include: • Victoria Chick • Paul Davidson • Alfred Eichner • Geoff Harcourt • Nicholas Kaldor • Michał Kalecki • Hyman Minsky • Basil Moore • Luigi Pasinetti • Joan Robinson • G. L. S. Shackle • Anthony Thirlwall • Sidney Weintraub • Jan Kregel • L.Randall Wray • Frederic S. Lee • Fernando Cardim de Carvalho Post-Keynesian theories • Job guarantee, from the Kansas City School • Monetary circuit theory, often associated with post-Keynesian economics • Neo-Chartalism, another post-Keynesian theory of money See also • Keynesian economics • New Keynesian economics Notes 1. ^ There is semantic dispute as to whether there should be a hyphen between Post and Keynesian. The American journal of the same name does not use the hyphen despite its grammatical correctness, and the objection to its use dates back to Paul Samuelson's claim to be a Post-Keynesian. However Harcourt 2006 uses the hyphen, following Joan Robinson's original use of the phrase. 2. ^ Skidelsky 2009, p. 42 3. ^ Financial markets, money and the real world, by Paul Davidson, pp. 88–89 4. ^ Hayes 2008 5. ^ Arestis 1996 6. ^ For a general introduction see Holt 2001 7. ^ Kaldor 1980 8. ^ Minsky 1975 9. ^ Robinson 1974 10. ^ Pasinetti 2007 11. ^ Harcourt 2006, Pasinetti 2007 12. ^ Davidson 2007 Post Keynesian Economics (1970s-80s) What is post keynesian economics Thanks to Samuelson's reconciliation, today neoclassical economics is known as microeconomics and Keynesian economics has become largely known as macroeconomics the twin pillars of mainstream or orthodox economic thought. However, because this reconciliation clearly disavowed many of Keynes's original ideas that were not held to be compatible with neoclassical economics, many critics have sought to revive some of them and to combine them with theories of scholars such as Michael Kalecki, Joan Robinson, and Piero Sraffa to form a new school of economic thought known as "post-Keynesian Economics" (see Eicher, 1979). Post-Keynesians are highly concerned with short-term economic growth as induced by aggregate demand and, unlike neo-classical economists, are concerned with real world variables that exist in a very concrete historical situation. For them, the adjustment process of the economy to equilibrium conditions is not so "automatic" as neoclassical economist's claimed because it largely depends on the economic agent's interpretation of both the past and expectations for the future all in the midst of a decision making setting involving complex interdependencies and unforeseen factors. As a result of these beliefs, post-Keynesians essentially deny relevance of conventional equilibrium analysis. Moreover, reliance on the role of uncertainty has created some problems for post-Keynesians because it has made it nearly impossible for them to devise any viable theory for long-term growth. It has further prevented them from developing a formal economic model that they all agree upon. According to Professor J. A. Kregel (1976), one of the most distinguished post-Keynesian economists, "post-Keynesian theory can be viewed as an attempt to analyze various different economic problems, e.g., capital accumulation, income distribution, etc., through the methodology of Keynes." Keynes's methodology, then, was to confront "the analysis of an uncertain world was in terms of alternative specifications about effects of uncertainty and disappointment." Using this approach while adopting theories of both Keynes and Kalecki, post-Keynesians have analyzed the relationship between income distribution and economic growth. One of the most significant conclusions of post-Keynesian economics is that for a given level of investment and an economy at equilibrium where savings equals investment, the lower the capitalist's propensity to save, the higher will be their share of national income and the lower will be the worker's share. This assertion is significant because it contradicts the claim by neoclassical economists that capitalists enjoyed a high income due to the pain that is necessary for them to save. This result of the post-Keynesians is founded in their belief that saving is passively linked to changes in level of income, and investment is highly correlated with capitalists' expectations for the future. If optimistic, investment increases, growth occurs, and capitalists' share of income increases as well. As their income rises, capitalists save more bringing savings back in line to a new level of Keynesian equilibrium where savings and investment equate. What this means is that if capitalists are frugal (i.e. save more), or if they are abstemious (i.e. abstain from consuming), they lower their share of the national income. This, of course, directly violates Nassau Senior's assertion that the high income of capitalists was morally justified by their painful abstinence of personal consumption and willful propensity to reinvest their profits into the growth of capital. Another area where post-Keynesians have divergent economic thought from orthodoxy has to do with their belief in the endogenity of money. For them, post-Keynesians stress the fact that real commodity and labor flows are expressed in the economy as monetary flows. They also assume that money possesses a negligible elasticity of substitution with any other medium of exchange and therefore has the unique capacity to be able to be used by financial institutions as a tool to mitigate the effects of exogenous economic system shocks.
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