The Post-Keynesian Economists

Economics is faced with six fundamental questions: (i) will the society organized on the principles of exchange (market economy) stay composed or will it fall apart (the question of existence of equilibrium)?, (ii) will such an equilibrium be unique (a multiplicity of equilibria poses difficult and embarrassing questions)?, (iii) will such an equilibrium be robust (the question of stability of equilibrium)?, (iv) will such an economy (society) be efficient?, (v) will it grow or expand forever?, and (vi) will it be just?

Broadly, economists may be classified into two groups - (a) those who answer to all the six questions in the affirmative, and (b) those who answer to all or some of the six questions in the negative. The Neo-Classicist belong to the first group, and Marx, for example, belongs to the second group. In view of the failure of the Neo-Classical economics in explaining the occurrence and persistence of the Great Depression, Keynes joined the second group and asserted that market mechanism is not self-corrective. He argued that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocated active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. Keynesian economists, thus, advocate a mixed economy - predominantly private sector, but with a large role of government and public sector - and served as the economic model during the latter part of the Great Depression, World War II, and the post-war economic expansion (1945-1973).

Keynesian economics was naturally uncomfortable to the protagonists of the free market economics. Some economists (notably, John R. Hicks and Paul A. Samuelson) soon internalised the Keynesian concepts into the Neo-Classical theoretical framework. This led to a synthesis and thus grew a system of thoughts called the Neo-Keynesian economics. Soon it became a part of the establishment economics. However, many economists considered such a synthesis illegitimate and inconsistent with the ideas of Keynes. These economists developed a system of ideas denoted by the Post-Keynesian Economics. 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.

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. Leijonhufvud proposed a radical reform of macroeconomic theory that would focus more clearly on the adjustment processes of actual economies. The IS-LM model proposed by the Neo-Classical Synthesis is essentially a Walrasian General Equilibrium Model that has been tampered with by preventing the money wage rate from adjusting to its market-clearing value. But Walrasian General Equilibrium theory is ill-suited for studying the problems of depression and involuntary unemployment, or for addressing the question of whether market forces can be relied on to restore equilibrium. This is because Walrasian theory was designed specifically to study ideal states of perfect coordination, states in which all markets are in equilibrium and the concept of involuntary unemployment is meaningless. Leijonhufvud proposed what he called a "cybernetic" approach, one with no presumption that the system is in an equilibrium state (see Peter Howitt, 2002). Monetary circuit theory, originally developed in continental Europe, placed 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.

The Post-Keynesian Economists
Joan Robinson Michal Kalecki
Paul Davidson Hyman Minsky
Luigi Pasinetti G. L. S. Shackle
Sidney Weintraub Nicholas Kaldor
Geoff Harcourt Basil Moore
Robert W. Clower Axel Leijonhufvud

Post-Keynesian Economics continues to attract many new authors. Most of their works may be free downloaded.



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