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Post-Keynesian economics is a school of economic thought with its origins in The General Theory of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Weintraub, Paul Davidson, Piero Sraffa and Jan Kregel. Historian Robert Skidelsky argues that the post-Keynesian school has remained closest to the spirit of Keynes' original work. [1] [2] It is a heterodox approach to economics. [3] [4]
The term "post-Keynesian" was first used to refer to a distinct school of economic thought by Eichner and Kregel (1975) [5] and by the establishment of the Journal of Post Keynesian Economics in 1978. Prior to 1975, and occasionally in more recent work, post-Keynesian could simply mean economics carried out after 1936, the date of Keynes's General Theory. [6]
Post-Keynesian economists are united in maintaining that Keynes' theory is seriously misrepresented by the two other principal Keynesian schools: neo-Keynesian economics, which was orthodox in the 1950s and 60s, and 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' ideas and insights. However, even in the early years, post-Keynesians such as Joan Robinson sought to distance themselves from Keynes, and much current post-Keynesian thought cannot be found in Keynes. Some post-Keynesians took a more progressive view than Keynes himself, with greater emphases on worker-friendly policies and redistribution. Robinson, Paul Davidson and Hyman Minsky emphasized the effects on the economy of practical differences between different types of investments, in contrast to Keynes' more abstract treatment. [7]
The theoretical foundation 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. [8] Contrary to the views of new Keynesian economists working in the neoclassical tradition, post-Keynesians do not accept that the theoretical basis of the market's failure to provide full employment is rigid or sticky prices or wages. Post-Keynesians typically reject the IS–LM model of John Hicks, which is very influential in neo-Keynesian economics, because they argue endogenous bank lending to be more significant than central banks' money supply for the interest rate. [9]
The contribution of post-Keynesian economics [10] has extended beyond the theory of aggregate employment to theories of income distribution, growth, trade and development in which money demand plays a key role, whereas in neoclassical economics these are determined by the forces of technology, preferences and endowment. In the field of monetary theory, post-Keynesian economists were among the first to emphasise that money supply responds to the demand for bank credit, [11] so that a central bank cannot control the quantity of money, but only manage the interest rate by managing the quantity of monetary reserves.
This view has largely been incorporated into mainstream economics and monetary policy, which now targets the interest rate as an instrument, rather than attempting to accurately control the quantity of money. [12] In the field of finance, Hyman Minsky put forward a theory of financial crisis based on financial fragility, which has received renewed attention. [13] [14]
In 2009 Marc Lavoie listed the main features of post-Keynesian economics: [15]
He also lists 5 auxiliary features:
There are a number of strands to post-Keynesian theory with different emphases. Joan Robinson regarded Michał Kalecki's theory of effective demand to be superior to Keynes' theories. Kalecki's theory is based on a class division between workers and capitalists and imperfect competition. [16] Robinson 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. [17] The writings of Piero Sraffa were a significant influence on the post-Keynesian position in this debate, though Sraffa and his neo-Ricardian followers drew more inspiration from David Ricardo than Keynes. Much of Nicholas Kaldor's work was based on the ideas of increasing returns to scale, path dependence, and the key differences between the primary and industrial sectors. [18]
Paul Davidson [19] 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.
Modern Monetary Theory is a relatively recent offshoot influenced by the macroeconomic modelling of Wynne Godley and Hyman Minsky's ideas on the labour market, as well as chartalism and functional finance.
Recent[ when? ] work in post-Keynesian economics has attempted to provide micro-foundations for capacity underutilization as a coordination failure (economics), justifying government intervention in the form of aggregate demand stimulus. [20] [21]
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Much post-Keynesian research is published in the Review of Keynesian Economics (ROKE), 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).
There is also a United Kingdom academic association, the Post-Keynesian Economics Society (PKES). It was founded by Philip Arestis and Victoria Chick in 1988 as the Post-Keynesian Economics Study Group (PKSG) [22] and changed its name in 2018. In the UK, post-Keynesian economists can be found in:
In the United States, there are several universities with a post-Keynesian bent:[ further explanation needed ]
In Canada, post-Keynesians can be found at the University of Ottawa and Laurentian University.
In Germany, post-Keynesianism is very strong at the Berlin School of Economics and Law [23] and its master's degree course: International Economics [M.A.]. Many German Post-Keynesians are organized in the Forum Macroeconomics and Macroeconomic Policies. [24]
The University of Newcastle in New South Wales, Australia, houses the post-Keynesian think-tank the Centre of Full Employment and Equity (CofFEE).
Major post-Keynesian economists of the first and second generations after Keynes include:
Keynesian economics are the various macroeconomic theories and models of how aggregate demand strongly influences economic output and inflation. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy. Instead, it is influenced by a host of factors – sometimes behaving erratically – affecting production, employment, and inflation.
Piero Sraffa was an influential Italian economist who served as lecturer of economics at the University of Cambridge. His book Production of Commodities by Means of Commodities is taken as founding the neo-Ricardian school of economics.
In economics, effective demand (ED) in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market. In the aggregated market for goods in general, demand, notional or effective, is referred to as aggregate demand. The concept of effective supply parallels the concept of effective demand. The concept of effective demand or supply becomes relevant when markets do not continuously maintain equilibrium prices.
A liquidity trap is a situation, described in Keynesian economics, in which, "after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest."
Alfred S. Eichner was an American post-Keynesian economist who challenged the neoclassical price mechanism and asserted that prices are not set through supply and demand but rather through mark-up pricing.
Michał Kalecki was a Polish Marxian economist. Over the course of his life, Kalecki worked at the London School of Economics, University of Cambridge, University of Oxford and Warsaw School of Economics and was an economic advisor to the governments of Poland, France, Cuba, Israel, Mexico and India. He also served as the deputy director of the United Nations Economic Department in New York City.
Modern Monetary Theory or Modern Money Theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. MMT is opposed to the mainstream understanding of macroeconomic theory and has been criticized heavily by many mainstream economists.
Hyman Philip Minsky was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research attempted to provide an understanding and explanation of the characteristics of financial crises, which he attributed to swings in a potentially fragile financial system. Minsky is sometimes described as a post-Keynesian economist because, in the Keynesian tradition, he supported some government intervention in financial markets, opposed some of the financial deregulation of the 1980s, stressed the importance of the Federal Reserve as a lender of last resort and argued against the over-accumulation of private debt in the financial markets.
Paul Davidson is an American macroeconomist who has been one of the leading spokesmen of the American branch of the post-Keynesian school in economics. He is a prolific writer and has actively intervened in important debates on economic policy from a position critical of mainstream economics.
Luigi L. Pasinetti is an Italian economist of the post-Keynesian school. Pasinetti is considered the heir of the "Cambridge Keynesians" and a student of Piero Sraffa and Richard Kahn. Along with them, as well as Joan Robinson, he was one of the prominent members on the "Cambridge, UK" side of the Cambridge capital controversy. His contributions to economics include developing the analytical foundations of neo-Ricardian economics, including the theory of value and distribution, as well as work in the line of Kaldorian theory of growth and income distribution. He has also developed the theory of structural change and economic growth, structural economic dynamics and uneven sectoral development.
The Keynesian Revolution was a fundamental reworking of economic theory concerning the factors determining employment levels in the overall economy. The revolution was set against the then orthodox economic framework, namely neoclassical economics.
Macroeconomic theory has its origins in the study of business cycles and monetary theory. In general, early theorists believed monetary factors could not affect real factors such as real output. John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions, he noticed the tendency for people and businesses to hoard cash and avoid investment during a recession. He argued that this invalidated the assumptions of classical economists who thought that markets always clear, leaving no surplus of goods and no willing labor left idle.
Athanasios "Tom" Asimakopulos was a Canadian economist, who was the "William Dow Professor of Political Economy" in the Department of Economics, McGill University, Montreal, Quebec, Canada. His monograph, Keynes's General Theory and Accumulation, reviews important areas of Keynes's General Theory and the theories of accumulation of two of his most distinguished followers, Roy Harrod and Joan Robinson.
Thomas Palley is an American economist who has served as the chief economist for the United States-China Economic and Security Review Commission.
Anwar M. Shaikh is a Pakistani American heterodox economist in the tradition of classical political economy and Marxian economics.
Marc Lavoie is a Canadian professor in economics at the University of Ottawa and a former Olympic fencing athlete.
Victoria Chick was an influential Post Keynesian economist whose writing on Keynes's General Theory made her one of the foremost interpreters of his work.
Stock-flow consistent models (SFC) are a family of macroeconomic models based on a rigorous accounting framework, which guarantees a correct and comprehensive integration of all the flows and the stocks of an economy. These models were first developed in the mid-20th century but have recently become popular, particularly within the post-Keynesian school of thought. Stock-flow consistent models are in contrast to dynamic stochastic general equilibrium models, which are used in mainstream economics.
Marxism and Keynesianism is a method of understanding and comparing the works of influential economists John Maynard Keynes and Karl Marx. Both men's works has fostered respective schools of economic thought that have had significant influence in various academic circles as well as in influencing government policy of various states. Keynes' work found popularity in developed liberal economies following the Great Depression and World War II, most notably Franklin D. Roosevelt's New Deal in the United States in which strong industrial production was backed by strong unions and government support. Marx's work, with varying degrees of faithfulness, led the way to a number of socialist states, notably the Soviet Union and the People's Republic of China. The immense influence of both Marxian and Keynesian schools has led to numerous comparisons of the work of both economists along with synthesis of both schools.
