History of Post Keynesian Economics

1
History of Post Keynesian Economics

• Its Core Principles

2
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 dont understand pre-Keynes economics in
  Cambridge you cant understand post-Keynes
  Cambridge economics
• There is no more Cambridge economics!

3
Pre-Keynes Cambridge Economics

• Marshall, but also Lavington, Pigou, Robertson,
  Hawtrey
• Monetary-Business cycle tradition
• Says 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?

4
Pre-Keynes Cambridge Economics

• All trained by Marshall
• JR anecdote
• They all rebelled against Marshall
• They all rejected self-adjustment
• Why didnt 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

5
General Theory challenges self-adjusting system
assumption

• Theory of Effective Demand
• Already present in Hawtrey linked to financing
• Core Principle gt Increasing saving does not
  provide resources for Investment
• Only Increasing Income increases savings
• Fallacy of Composition

6
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

7
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

8
Rethinking the Classical Tradition

• Sraffas rehabilitation of Ricardo
• Sraffas constant costs Imperfect Competition
• Kalecki Income Distribution and Class
• Marshalls Long/Secular Period as Classical
• Long-period theory of employment Joan Robinson
  Richard Kahn
• Keynesian theory of distribution N Kaldor

9
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

10
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 micro-
  Keynesian macro

11
Fighting Bastard Keynesians

• Prevent bringing Pre-Keynesian theory in through
  the back door
• PostKeynesian Distribution Theory
• Kaldor macro
• Kalecki micro degree of monopoly

12
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!

13
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

14
Bastard Keynesians Become Neo-Neoclassics

• 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

15
New Keynesians

• Mainstream redefines Keynes Quantity
  Constraints, Lemons and Asymmetric information
• Market Imperfections
• Ron Reagan and W become major PK economists

16
Where have all the Bastard Keynesians Gone?

• Go Back to Monetary Production Economics
• PK is understanding Keynes
• -- Its Money Stupid!
• -- Its Uncertainty Stupid!
• PK is endogenous money
• -- Its Endogenous Money Stupid!
• -- Its the Circuit Stupid!
• but already present in Hawtrey, Kalecki and
  Keynes
• There is no money in PK Growth Distribution
  Theory

17
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

18
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

19
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
• Its Price Theory Stupid!

20
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