Post-Keynesian economics is aschool of economic thought with its origins inThe General Theory ofJohn Maynard Keynes, with subsequent development influenced to a large degree byMichał Kalecki,Joan Robinson,Nicholas Kaldor,Sidney Weintraub,Paul Davidson,Piero Sraffa,Jan Kregel,Basil J Moore andMarc Lavoie. HistorianRobert Skidelsky argues that the post-Keynesian school has remained closest to the spirit of Keynes' original work.[1][2] It is aheterodox approach to economics[3][4] based on anon-equilibrium approach.[5]
The term "post-Keynesian" was first used to refer to a distinct school of economic thought byEichner and Kregel (1975)[6] and by the establishment of theJournal 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'sGeneral Theory.[7]
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, andnew Keynesian economics, which together with various strands ofneoclassical economics has been dominant in mainstreammacroeconomics 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 andHyman Minsky emphasized the effects on the economy of practical differences between different types of investments, in contrast to Keynes' more abstract treatment.[8]
The theoretical foundation of post-Keynesian economics is theprinciple 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 towardsfull employment.[9] 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 orsticky prices or wages. Post-Keynesians typically reject theIS–LM model ofJohn 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.[10]
The contribution of post-Keynesian economics[11] has extended beyond the theory of aggregate employment to theories ofincome 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,[12] so that acentral 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 andmonetary policy, which now targets the interest rate as an instrument, rather than attempting to accurately control the quantity of money.[13] In the field of finance, Hyman Minsky put forward a theory of financial crisis based onfinancial fragility, which has received renewed attention.[14][15]
In 2009Marc Lavoie listed the main features of post-Keynesian economics:[16]
He also lists 5 auxiliary features:
There are a number of strands to post-Keynesian theory with different emphases. Joan Robinson regardedMichał Kalecki's theory of effective demand to be superior to Keynes' theories. Kalecki's theory is based on aclass division between workers and capitalists andimperfect competition.[17] Robinson also led the critique of the use of aggregate production functions based on homogeneous capital – theCambridge capital controversy – winning the argument but not the battle.[18] The writings ofPiero Sraffa were a significant influence on the post-Keynesian position in this debate, though Sraffa and hisneo-Ricardian followers drew more inspiration fromDavid Ricardo than Keynes. Much ofNicholas Kaldor's work was based on the ideas of increasingreturns to scale,path dependence, and the key differences between theprimary andindustrial sectors.[19]
Paul Davidson[20] follows Keynes closely in placing time anduncertainty 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. An important method isstock-flow consistent models, which enable a consistent description of receivables and liabilities as well as cash flows.[21][22][23][24]
Horizontalism is an approach tomoney creation theory pioneered byBasilJ Moore which states that privatebank reserves are not managed bycentral banks. Instead reserves will be provided on demand at thebank rate set by the central bank. This inverts the mainstream textbookmoney multiplier relationship between deposits and loans since loans are said to cause deposits which in turn cause reserves.Basil J Moore is best known for his book,Horizontalists and Verticalists: The Macroeconomics of Credit Money (Cambridge UP, 1988), as well as a great many other writings on endogenous money. Ulrich Bindseil, of the European Central Bank, claimed the book ‘has impressively stood the test of time. … Central bankers have by now largely buried “Verticalism”, at least when it comes to monetary policy implementation’ (U Bindseil and J Konig, ‘Basil J Moore’s Horizonalists and Verticalists: an appraisal 25 years later’, inReview of Keynesian Economics, 1(4), 2013, pp. 383–385).[25]
Modern Monetary Theory is a relatively recent offshoot independently pioneered by Warren Mosler that models the currency itself as a public monopoly as the micro foundation of macro economics, thereby augmenting the theory of effective demand, recognizing that coercive taxation drives the currency (the tax credit) and that the price level is necessarily a function of prices paid by the state. Subsequent MMT associated academics have used macroeconomic modelling ofWynne Godley and incorporated some ofHyman Minsky's ideas on the labour market, as well aschartalism andfunctional finance.
Recent[when?] work in post-Keynesian economics has attempted to provide micro-foundations for capacity underutilization as acoordination failure, justifying government intervention in the form of aggregate demand stimulus.[26][27]
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Much post-Keynesian research is published in theReview of Keynesian Economics (ROKE), theJournal of Post Keynesian Economics (founded bySidney Weintraub andPaul Davidson), theCambridge Journal of Economics, theReview of Political Economy, and theJournal of Economic Issues (JEI).
There is a United Kingdom academic association, thePost-Keynesian Economics Society (PKES). It was founded byPhilip Arestis andVictoria Chick in 1988 as the Post-Keynesian Economics Study Group (PKSG)[28] and changed its name in 2018. In the UK, post-Keynesian economists can be found in:
Working on post-Keynesian economic foundations, the UK-based global economicsconsultancy, Cambridge Econometrics,[29] developed a computer-basedEnergy-Environment-Economy Model for Europe (E3ME)[30]economic model. It is used byEuropean Commission to analyse medium and long-term effects of itsenvironmental andeconomic policies.[31]
In the United States, there are several universities with a post-Keynesian bent:[further explanation needed]
In Canada, post-Keynesians can be found at theUniversity of Ottawa andLaurentian University.
In Germany, post-Keynesianism is very strong at theBerlin School of Economics and Law[32] and its master's degree courses: International Economics [M.A.] and Political Economy of European Integration [M.A.]. Many German Post-Keynesians are organized in the Forum Macroeconomics and Macroeconomic Policies.[33]
TheUniversity of Newcastle in New South Wales, Australia, houses the post-Keynesianthink-tank theCentre of Full Employment and Equity (CFFE). New Life – Blind Melon.
Major post-Keynesian economists of the first and second generations after Keynes include:
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