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Post-Keynesian economics |
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Please wikify this article or section. Help improve this article by adding relevant internal links. (October 2008) |
Post Keynesian economics 1 is a school of thought with its origins in The General Theory of John Maynard Keynes, although its subsequent development was influenced mainly by Joan Robinson, Nicholas Kaldor and Paul Davidson.
The school maintains that Keynes’s theory is misrepresented both by Keynesian and by New Keynesian economics, which dominates today’s mainstream macroeconomics alongside neoclassical economics. The distinctive feature of Post Keynesian economics (Arestis 1996) 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).
The positive contribution of Post Keynesian economics (for a general introduction see Holt and Pressman 2001) 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 (Kaldor 1980), 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 (1975) put forward a theory of financial crisis based on financial fragility, which has recently received renewed attention.
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 (Robinson and Eatwell 1974). She also led the critique of the use of aggregate production functions based on homogeneous capital, winning the argument but not the battle (Pasinetti 2007). 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 (Harcourt 2006, Pasinetti 2007). Paul Davidson(2007) 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. 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.
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 and the Review of Political Economy. There is also a UK academic association, the UK Post Keynesian Economics Study Group (PKSG).
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