Transcript History of Post Keynesian Economics

History of Post Keynesian
Economics
Its Core Principles
History of Ideas – and of People
• Keynes was a Cambridge Economist
• Working in the Cambridge Tradition
• PK economics could be called
Cambridge Economics after Keynes
If you don’t understand pre-Keynes
economics in Cambridge you can’t
understand post-Keynes Cambridge
economics
{There is no more Cambridge economics!}
Pre-Keynes Cambridge Economics
• Marshall, but also Lavington, Pigou,
Robertson, Hawtrey
• Monetary-Business cycle tradition
• Say’s Law tradition – self-stabilising nature
of economic system
• The British Slump –started in 1920s
• Going off Gold standard
• Public works – Can Lloyd George Do It?
Pre-Keynes Cambridge Economics
•
•
•
•
•
All trained by Marshall
JR anecdote
They all rebelled against Marshall
They all rejected self-adjustment
Why didn’t price adjustment produce recovery
from the slump
• Kahn Fellowship Dissertation
• Sraffa challenged Marshallian doctrine of perfect
competition –Laws of Returns
• Joan Robinson produce Economics of Imperfect
Competition
General Theory challenges selfadjusting system assumption
• Theory of Effective Demand
• Already present in Hawtrey – linked to
financing
• Core Principle > Increasing saving does
not provide resources for Investment –
• Only Increasing Income increases savings
• Fallacy of Composition
Alternative Versions of Core
Principle -- Kalecki
• Increasing profits share by reducing
wages does not increase investment
• Income Distribution – by income class
• Degree of monopoly – formally equivalent
to propensity to consume
• Return of Classical price theory
– constant wage share
– constant costs
Alternate Versions of Core
Principles -- Lerner-- Domar
• Fiscal Budget surplus does not free
resources for investment
• Functional Finance
• Fiscal Deficits Necessary over time
• Domar – deficits can stabilise as share of
GDP
• Balanced Budget Multiplier
Rethinking the Classical Tradition
• Sraffa’s rehabilitation of Ricardo
• Sraffa’s constant costs & Imperfect
Competition
• Kalecki Income Distribution and Class
• Marshall’s Long/Secular Period as
Classical
• Long-period theory of employment – Joan
Robinson – Richard Kahn
• Keynesian theory of distribution – N Kaldor
Bastard Keynesians were also at
work
• Marshall is built on process of adjustment
driven by relative price determined
substitution of factors
If wages are low enough a given stock of
capital can employ all workers – putty
capital
If wages are low enough a given stock of
money will produce interest rate low
enough to produced enough investment
that via the multiplier will increase incomes
and consumption by enough to provide full
employment
Given Capital Stock, Given Money Supply
• Both are “long-period” adjustment
processes
• Ignore “History v. Equilibrium”
• Comparison v. Change
• Daylight saving time
• Pigou and Keynes on causes of fall in real
wages with an increase in output and
employment
• Neo-classical synthesis – neoclassical
Fighting Bastard Keynesians
• Prevent bringing Pre-Keynesian theory in
through the back door
• PostKeynesian Distribution Theory
• Kaldor == macro
• Kalecki == micro – degree of monopoly
Fighting Bastard Keynesians
• PostKeynesian Growth Theory – Robinson
-- Attack K in production function – marginal
productivity – malleable capital
-- Sraffa – value of capital not independent of rate
of interest, i.e. of its price
-- Leon - Pasinetti – Structural Change & Growth
-- Garegnani – mec curve is neoclassical
-- Roncaglia: join Prices of production to Keynes”
Effective Demand ..
-- Long Period Theory of Effective Demand
{Solow-Swan comes afterwards!}
Fighting Bastard Keynesians – Price
theory
• Attack perfect competition price theory
-- Kalecki: degree of monopoly
-- Harrod: Dynamic economics
-- Sylos Labini: Oligopoly and Technical
Progress
-- Weintraub: mark up pricing – magic “k”
-- Eichner: MegaCorp and Oligopoly
-- Andrews – Oxford Research Group
Bastard Keynesians Become NeoNeoclassics
•
•
•
•
Capital Theory – Parables are never true
General Equilibrium – Arrow Debreu
Rational Expectations – Lucas
Samuelson surrenders -- Elvis has left the
building
• Mainstream disengages
• Classical Economics Redux
• Return of the Budget Hawks
New Keynesians
• Mainstream redefines Keynes – Quantity
Constraints, Lemons and Asymmetric
information
• Market Imperfections
• Ron Reagan and W become major PK
economists
Where have all the Bastard
Keynesians Gone?
• Go Back to Monetary Production Economics
PK is “understanding” Keynes
-- It’s Money Stupid!
-- It’s Uncertainty Stupid!
PK is endogenous money
-- It’s Endogenous Money Stupid!
-- It’s the Circuit Stupid!
{but already present in Hawtrey, Kalecki and
Keynes}
There is no money in PK Growth & Distribution
Theory
Are Core Principles Enough?
• Raising Saving, Lowering Wages,
Balancing the Budget no good
• Bastard Keynesian Response says NO
-- History versus Equilibrium
-- Fundamental Uncertainty
-- Mark-up pricing
Monetary Production
Integration of Money and Real –
Money a “Real Factor”
Integration of Micro and Macro
Micro decisions Macro outcomes
 Expectations of the Future
Impinge on Present Decisions
Financial Fragility - Instability
Monetary Production
Money Today v. Money Tomorrow
Decisions -- Marx M-C-M’
Revise our theory of Supply and
Demand
Spot v. Forward Prices
“Two Price” Theory
{It’s Price Theory Stupid!}
Monetary Production
Money rate of interest rules the roost
Liquidity Preference
Need to Define Nature of Money
 Define a Monetary Production
Economy
 -- Chapter 17 essential properties
 -- Chartalism -- state money