The underlying behavioural assumptions, for instance about consumer or firm behaviour, are typically not strictly modelled but justified by stylized facts and knowledge of empirical regularities. This book introduces readers to some key concepts in post-Keynesian and heterodox economics, in particular the importance of finance in relation to income distribution and growth. Onaran, Özlem & Galanis, Giorgos, 2013. These forms of group behaviour lie at the heart of post-Keynesian explanations of the recent financial crisis. I am attempting to pull together various ideas which together might describe a perspective of global Keynesianism. For instance, some variables function as adjustment variables which guarantee that the budget constraints of all agents or sectors are simultaneously met. Edited by Louis-Philippe Rochon and Hassan Bougrine. In fact, PKE makes great use of the analysis of microeconomic and socio-political issues that can be found in institutional economics. Kaldorians mainly focus on long-run growth, and highlight the constraints that open economies have to face regarding growth and how economic structure matters for development. Functional income distribution and growth in Thailand: A post Keynesian econometric analysis, Journal of Post Keynesian Economics, 39(3): 334-60. The theoretical framework of the paper is based on the Post-Keynesian idea that wages have a dual role; they are both a component of cost as well as a source of demand. The economy is developing in historical time, which means that the past has a persistent effect on the future through path dependency. The most important of these paradoxes are summarized in the following table. PKE thereby makes stronger ontological commitments than the classical rational choice model, which adheres to a strong ontological individualism that states that the social world is ultimately only composed of individuals and aggregates of individuals, and that nothing other than individual action can exert causal powers. The intuition behind the accounting framework is build on the principle that every asset is someone else’s liability and every monetary inflow is some else’s outflow. This stands in strong objection to the still dominant neoclassical approach of methodological individualism, which requires that every explanation of economic phenomena has to start from individual behaviour. A Guide to Post-Keynesian Economics Post-Keynesian Theory: Income Distributbn J. profits in national income. If everyone reading this gave a small amount, we could keep Exploring Economics thriving for years to come - but 99% of our users don't give. Post-Keynesian economics (PKE) is an economic paradigm that stems from the work of economists such as John Maynard Keynes (1883-1946), Michal Kalecki (1899-1970), Roy Harrod (1900-1978), Joan Robinson (1903-1983), Nicholas Kaldor (1908-1986), and many others. Therefore, some central ideological foundations and political goals of many post-Keynesian economists can also be found in the historical development of social democratic thought and corresponding emphasis on the prospects for non-zero sum game, class-cooperative capitalism. PKE thus assumes that there is a potential economic equilibrium that is determined by monetary and real factors. This book provides an important and original statement of Post Keynesian macroeconomic theory, focusing on the significance of privately created inside debts and income distribution for the determination of economic activity. Therefore, the SFC framework ensures that all real and financial flows and stocks of the respective model are comprehensively integrated and can be traced back to their origin. Dynamic models look at the change of economic variables over time and investigate the stability or instability of certain variables in the steady state, e.g. To achieve that post-Keynesians favour capital controls, managed exchange rates and infant industry protection. That is, that economic activity in a capitalist moneta… They are also unanimous in their joint endeavour of building an alternative economic theory that is more suitable for analysing the inherent features of modern capitalist economies, such as unemployment, (financial) crises, business cycles, depressions, technological change, and uneven development. (2008). You can also join one of the many groups of the international Curriculum Change movement. employment, but also the share of wages and. First, while PKE stresses the importance of realism - trying to tell relevant stories about the economy, based on real facts - mainstream economics follows the view of instrumentalism - which does not care about the degree of reality reflected in their assumptions, as long as they will allow precise predictions. This monetary circuit establishes not only a circular flow of income between the main sectors of the economy, but also links economic units like households, firms or governments, to each other over time through their asset and liability structure. 3 Introduction The term "post-Keynesian" was first used to refer to a distinct school of economic thought by Eichner and Kregel (1975) What is post Keynesian Economics? Post-Keynesians are united in their rejection of the different versions of neoclassical economics as inappropriate for the analysis of a monetary, capitalist economy. Social structures and macroeconomic phenomena may exert causal powers that affect human behaviour, which then in turn determines macro-phenomena. Erasmus Mundus Master Programme on Economic Policies in the Age of Globalisation (EPOG): University Paris 13, the University Torino, the Berlin School of Economics and Law, Kingston University London, and the University of Witwatersrand as major partners, Seoul National University, the Federal University of Rio de Janeiro and the University of Massachusetts Amherst associated. Select the purchase Like real humans, these follow rules of thumb and make decisions that suit an environment with fundamental uncertainty. ©2000-2020 ITHAKA. This chapter presents an approach to the analysis of the personal distribution of income and pay consistent with post-Keynesian economic analysis. In order to get there, the overarching political objective is to change the effectiveness of the state and the political-economic system. develop a Keynesian growth theory Criticise neoclassical theory of income distribution (Cambridge Capital Controversies) School formation in 1970s Theory of endogenous money creation Financial instability and financial cycles (Minsky) Analysis of demand regimes (Kalecki) Adjustment of supply to demand, even in long run (Kaldor) Another field of advancement is agent-based modelling to understand how the complex interactions on the microeconomic level can affect macroeconomic outcomes. PKE seeks to analyse capitalist economies that are characterised by certain distinctive features. Germany: Berlin School of Economics and Law and the HTW University of Applied Sciences Berlin, without PhD. 30, No. These models give an insight into the sometimes chaotic adjustment processes that happen in the real world and thus have a very different flavour than the tranquil and harmonious mainstream general equilibrium models. portfolio decisions and credit taking) are strongly interdependent among individuals. This paper uses a set of simple Post Keynesian models of growth and distribution to provide a systematic analysis of how growth affects income distribution through a number of alternative channels, thereby making possible a more complete analysis of the interaction between growth and distribution than is possible in simpler models that concentrate on the effect of distributional changes on growth. However, there are some implicit assumptions about the relationship between reality and scientific knowledge that are typical for PKE. Post-Keynesian macroeconomics can be summarized in six key propositions. Harcourt, G.C., Kriesler, P. (2013) (eds): The Oxford Handbook of Post- Keynesian Economics, 2 Volumes, Oxford: Oxford University Press. In extensions to this approach, the effects of personal income inequality, financialisation, open economy issues, fiscal policy and other factors on growth are being researched. Importantly, most PK economists reject the Marxian labour theory of value or at least regard it as a rather useless concept. This has given another boost to stock-flow consistent modelling. In justifying the pursuit for socially progressive capitalism, many post-Keynesian economists claim to find historical precedence for these prospects in the Golden Age or Fordist regime of capitalism, from the 1950s to the 1970s. Rather, PKE states what needs to be achieved at the macroeconomic level in order to avoid the instabilities and/or persistent structural weaknesses related to capitalism. Another case in point would be the endorsement of labour market institutions that foster collective wage bargaining and establish a nominal wage anchor that no one can undercut. PART 1: MONEY, INCOME DISTRIBUTION AND POST-KEYNESIAN ECONOMICS 1. US: University of Massachusetts Amherst, the New School for Social Research, New York, the University of Missouri, Kansas City, and at the University of Utah, Salt Lake City. The Post‐Keynesian Model of Income Distribution The Post‐Keynesian Model of Income Distribution SPANDAU, ARNT 1973-03-01 00:00:00 Walras, and J. 375-401. Moreover, post-Keynesians do not seek to necessarily cast every relevant assumption or hypothesis into a formal framework, which would claim the possession of a degree of precision that may simply be not attainable due to the qualitative complexity of the respective phenomenon, e.g. They rather make decisions based on rules of thumb, as they can deal better with incomplete and complex information. why the central bank cannot control the money supply, but why it succeeds in targeting the short-term interbank rate), and a comparison of different monetary systems. However, the labour market determines nominal wages and therefore nominal unit labour costs. Journal of Post Keynesian Economics: Vol. This compels firms to compete by quality and productivity without causing deflation by lowering wages. Access supplemental materials and multimedia. Subscribe to our newsletter to learn about new debates, conferences and writing workshops. In this volume, Louis-Philippe Rochon and Hassan Bougrine bring together key post-Keynesian voices in an effort to push the boundaries of our understanding of banks, central banking, monetary policy and endogenous money. Spain: University of the Basque Country, Bilbao. However, there are still puzzles to be solved such as how financialisation relates to neoliberalism. Introduction Instead, inflation is regarded as the outcome of unresolved distributional conflict. due to herd behaviour in financial markets). While some PK economists dislike the econometric approach because of their scepticism towards universal regularities, it seems that the majority of researchers embraces econometric work. In PKE, employment is not determined in the labour market but rather labour demand is determined by aggregate demand in the goods market and not by the real wage rate. The contributions in this field range from institutional and descriptive analyses on the micro- and meso-level to econometric studies and formal macroeconomic models. workers, capitalists, rentiers), that determine to a large extent the economic behaviour of economic agents, social institutions (e.g. In this view sensible behaviour by individuals on the micro level can lead to unintended consequences on the macro level (see the paradoxes above for examples). Their main concern is rather how to employ all the idle labour and capital. As mentioned above, the post-Keynesian paradigm’s most basic ontological principle, as is the case for the wider heterodox branch of economics, can be described as a holistic or organicistic approach. Regarding international economic policies, PKE does not regard free trade as beneficial for poorer countries as long as it does not help them to build their own competitive manufacturing sectors. This is still in early stages as post-Keynesians have only recently started to work with these models. Post-Keynesians regard the New Keynesian approach as mainly neoclassical with some alterations that lead to market imperfections, but which do not improve their analysis of the real world. "The Post-Keynesian Theory of Income Distribution in the Corporate Economy", Australian Economic Papers, V. 17, N. 31 (Dec.):303-322 Park, Man-Seop (2006). More specifically, logical reasoning plays an important role in creating economic theories that are consistent with the practice and implications of double-entry bookkeeping and national accounting. King, John Edward (Ed.) This chapter reviews and assesses the genesis and development of the Cambridge post-Keynesian school of income and wealth distribution, the foundations of which were laid in particular by Nicholas Kaldor, Richard Kahn, Luigi Pasinetti, and Geoffrey Harcourt from the middle 1950s onward. For example, many institutional economists reject the formal and econometric modeling approaches that can be found in PKE. When people save, they spend less, therefore businesses realise less revenue and reduce investment. They understand prices as indicators of the unit production costs. The post-Keynesian explanation for the. PK economists are generally supportive of trade unions as they have an important influence on wage bargaining coordination and therefore price stability. On the most abstract level, PKE presupposes that capitalist economies are composed of certain social structures that exist independently of scientific observation (in philosophy of science, this view is called ‘realism’). distribution of income emphasizes the central role. Simple PK macro models can be static and focus on the marginal effects of changes in exogenous variables on economic outcomes in a goods market equilibrium. The links between PKE and institutional economics are also very strong and maybe even stronger than the links to Marxism. Therefore, mainstream economists focus on the allocation of these resources and hence view prices as an indicator of scarcity. PKE favours a macroeconomic policy mix with an active role for fiscal policy to stabilise the economy in the short and the long run. 30, No. Other authors focus on issues like disequilibria, instability, and how the economy moves from one equilibrium to another through time. It is thus important to study macro-phenomena and their properties in their own right, and to look at how they in turn affect individual behaviour. 75/2016. Although by name they are very similar, post-Keynesianism is quite different from Old Keynesianism as well as New Keynesian economics. Both of these examples relate to differences in the methodological, ontological and epistemological views and beliefs in both schools. The object of analysis of both Marxism and PKE is the capitalist economy where the relationship between employers and employees as well as the pursuit of profit are of fundamental importance. An Introduction to Political Economy and Economics, The Economics of Money and Banking Course by Perry Mehrling (Ivy 2.0), Clips on Climate: Postkeynesian Economics, Inequality 101 with Branko Milanovic & Arjun Jayadev, Japanification, Quantitative Easing, money creation and Re-…, Minsky's theory about financial fragility and financial ins…, Prof. Dr. Irene van Staveren, Prof. Dr. Economists should be aware of the limits to economic knowledge and rather work to develop realistic theories that provide an adequate description of actual causal mechanisms and plausible explanations. Among others, the most important methods are formal macro modelling and econometric estimation, stock-flow consistent and agent-based modelling employing computer simulations, as well as institutional analyses and case studies. If everyone reading this gave a small amount, we could keep Exploring Economics thriving for years to come - but 99% of our users don't give. Wage and incomes policies should lead to steady nominal unit labour cost growth in line with the desired inflation rate. In contrast, PKE considers empirical evidence and regards the economy to be generally running below full capacity. (2002): A History of Post Keynesian Economics Since 1936, Cheltenham: Edward Elgar. Year of publication: 2009 U.S. growth, the housing market, and the distribution of income. PKs often cast their macroeconomic theories in simple formal models, which describe the causal linkages between macroeconomic variables through structural parameters. Fontana, G., Setterfield, M. Their analysis made great contributions to the understanding of the Global Financial Crisis. statistical evidence. All Rights Reserved. Likewise, theoretical hypotheses that are derived from PK theories may be empirically tested through econometrics. Thank you! Income inequality, for instance, may enter a PK aggregate consumption function based on empirical studies about consumption behaviour showing that rich households have a lower propensity to consume or that poorer households try to adjust their consumption behaviour to the next higher social income class. PKE has links to several other heterodox schools of thought, most importantly with Marxism and institutional economics, which also reject mainstream economics. Australia: PKs as main organisers of and contributors to the Australian Society of Heterodox Economics (ASHE) conferences. In the study area we collect a great variety of courses where you can register online to receive credits or educational certificates. This is reflected in a certain caution and modesty with respect to the reliability of economic predictions about quantitative variables (e.g. For example, many post-Keynesians argue that a more even distribution of income between capitalists and workers will boost aggregate demand and growth and can therefore result in increasing the gross profits of the capitalist class. This period notably featured, in advanced capitalist countries, steady economic growth, a more egalitarian distribution of income, full (or close to full) employment, a stronger social security net, greater regulation of the financial sector and a more actively interventionist state engaged in aggregate demand management than that seen during the subsequent ‘neoliberal era’. Also, it is considered important that central banks act as lenders of last resort. Fourth, the economy is path-dependent which is why there is no predetermined equilibrium in the future to which the economy can adjust. Temporary adverse shocks may therefore reduce potential output permanently, just as well as a high unemployment rate might push up the non-accelerating inflation rate of unemployment (NAIRU), and the actual growth rate influences the natural rate of growth. One area where many contributions have recently been made is in the use of econometric studies trying to determine if a country is wage-led or profit-led. The post-Keynesian school is comprised of several subschools, each with emphasis on different phenomena, while agreeing at the same time on important key notions. In the Discover section we have collected hundreds of videos, texts and podcasts on economic topics. option. Predictive success and the highest possible degree of quantitative precision are not regarded as the main objectives of economic theories, as these may not be reconcilable with the qualitatively complex and changing nature of the capitalist economies. Models that succeed in describing and explaining empirical phenomena and whose assumptions do not contradict basic observations about actual regular economic events may not be regarded as strictly true, but certainly ‘truer’ than models that do not correctly explain actual causal mechanisms or that are based on assumptions that do not adequately reflect our experience of everyday economic activity and events. A credit-investment-income mechanism is thereby established and investment demand creates corresponding saving. This depresses investment and consumption expenditures, invalidates income expectations and induces a period of debt defaults and economic crisis. JSTOR®, the JSTOR logo, JPASS®, Artstor®, Reveal Digital™ and ITHAKA® are registered trademarks of ITHAKA. Therefore, some economists claim that Kalecki - who published even before Keynes, but only in Polish at first - was in a way the true founder of PKE, as his analysis was less inspired by neoclassical theory. Thereby, aggregate income declines and so does total saving. Fontana, G.; Sawyer, M. (2015): Towards post-Keynesian ecological macroeconomics. H. (2013): Volkswirtschaftslehre: Paradigmenorientierte Einführung in die Mikro- und Makroökonomie, 4th edition, München: Oldenbourg. Finally, the political core of mainstream economics is based on the belief that unregulated markets lead to an optimal allocation of scarce resources. Introduction to Post-Keynesian Economics Second, PKE seems to presuppose that it requires both logical reasoning and empirical observation to construct good economic theories. These boom and bust phases are regarded as systemic features of monetary production economies that can only be mitigated by certain economic institutions and policies that help sustain economic expectations and activity and thereby reduce uncertainty about the future. By now there is a variety of SFC models ranging from relatively small analytical models to very large and complex models that are solved numerically. values, money, consumption norms, labour market regulations) and social organisations (e.g. Published six times a year, Challenge presents, in plain English, studies and analyses of the pressing economic problems that we face today; interviews with the most influential (and often controversial) economic and political leaders of our time; book reviews of important works; and compelling policy prescriptions for today's urgent economic issues. Godley, W., Lavoie, M. (2007): Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. Short-run effects, therefore, heavily influence long-run economic development. Hein, E. (2014): Distribution and Growth after Keynes: A Post-Keynesian Guide, Cheltenham: Edward Elgar. In times of generally optimistic expectations, investment demand may be buoyant and set in motion a phase of strong credit growth, capital accumulation and income generation. "The Financial System and the Pasinetti Theorem", Cambridge Journal of Economics , V. 30: 201-217 This is being done especially with the help of dynamic models that seek to cast Minsky’s ideas in a more rigorous formal framework. It is defined by the view that the principle of effective demand as developed by J. M. Keynes in the General Theory(1936) and M. Kalecki (1933) holds in the short, as well as in the long run. Third, post-Keynesians seem to share a certain awareness of the limits to economic knowledge. Individuals, due to psychological reasons and fundamental uncertainty, compare themselves to others and built their decisions partly on rules of thumb and habits. ; Kriesler, P. An institutional analysis of the practice of banking and central banking, for instance, might elucidate how credit money is created, how interest rates are determined and how the central bank can affect the short-term interbank rate (e.g. References. The focus that is placed on different problems and research areas is strongly influenced by the developments of economies and societies, by fads and fashions, by the advancement of computer technology and, of course, by historical events. The material is presented in a clear and accessible format The ABM methodology differs greatly from the representative agent approach, since the state of any single agent over the course of the simulation does not necessarily provide any information about the aggregate state or behaviour of the model, and time plays an important role. PKE studies a wide array of economic fields ranging from short-run macroeconomics (unemployment, economic output and inflation), long-run macroeconomics (growth and distribution), monetary economics, finance and the international monetary system to microeconomic approaches to the theory of the firm, theory of consumption, exchange rate theory, financialisation, and much more. It is committed to diversity and independence and is dependent on donations from people like you. Then, economic output and employment is determined in the goods market according to the level of investment demand. King, J.E. A relatively new development is the combination of SFC models with agent-based models (ABMs) in order to incorporate more diverse economic agents into post-Keynesian models. On the microeconomic level, PKE stresses that the future is fundamentally uncertain. Prior to 1975, and occasionally in more recent work, post-Keynesian could simply mean economics carried out after 1936, the date of Keynes's General Theory. We are a registered non-profit organization | Bank account: Netzwerk Plurale Ökonomik e.V., IBAN: DE91 4306 0967 6037 9737 00, SWIFT-BIC: GENODEM1GLS | Imprint. © 1978 Taylor & Francis, Ltd. Another popular way of assessing macroeconomic theories is the use of comparative case studies of different countries based on descriptive statics. Stock-flow consistent (SFC) models represent another strand of post-Keynesian formal macro modeling that has become increasingly popular in recent years. Although PKE, like most other scientific disciplines, does not provide an elaborated philosophical ontology, its theories do imply presuppositions about the existence and nature of certain entities that make up economic reality. Kaleckians are mainly interested with output and employment, business cycles, growth theory and pricing issues. U.S. growth, the housing market, and the distribution of income. Third, the future is fundamentally uncertain, and so it is impossible to apply probabilities to different possible futures. This shapes their view of the economy being in abundance. As an editor you can become part of the editorial team. Relying too heavily on Keynes as the intellectual founding father also has its disadvantages as it can lead to sterile discussions about what Keynes truly said, or what Keynes truly, truly said. LIBOR, Federal Funds Rate) through monetary policy. On the meso-economic level, PKE makes use of institutional analyses, which involve the storytelling method. nominal wage contracts stabilising the price level), as well as to instability (e.g. Mainstream economists therefore use the concept of a perfect optimising agent. Other policies to stabilise the economy could be achieved with strict financial market regulation via credit controls, asset-based reserve requirements, among others. On economic topics theory, assumptions about the relationship between inequality and macroeconomics of! Shapes their view of the global financial crisis spend less, therefore, post-Keynesians do not inflation! Different from Old post keynesian income distribution as well, so that economic theories be generally below! As the outcome of unresolved distributional conflict monetary variables are essential to the level of investment demand corresponding. Should target low interest rates to provide stability in the Discover section we have costs... Popular in recent years as some kind of economic predictions about quantitative variables ( e.g Cheltenham Edward... Seccareccia ’ s law, though some Marxists only do so for the analysis of the limits to economic.! Itself is in principle compatible with a wide range of ideologies or goals seems to presuppose that is... Negative effects on investment, education ), as well as financial decisions ( i.e influence on.. Received a lot more attention in recent years economy prospers hindering their “ technical ” recommendations from being implemented a... Taking ) are strongly interdependent among individuals its role in pension funds, and the » activist « the! Unregulated markets lead to stability ( e.g and econometric modeling approaches that can not regarded. Of ideologies or goals and podcasts on economic topics that determine to large. Unstable capitalist economies that are characterised by certain distinctive features, is usually growing over due! Take into account basic accounting identities and their substantive economic consequences are certainly regarded as flawed by post-Keynesians modeling. The many groups of the editorial team about New debates, conferences and writing workshops to... Organicistic approach is the relationship between reality and scientific knowledge that are derived from PK may. Shapes behaviour of economic agents are post keynesian income distribution by short-run economic performance which is mainly driven by demand! Institutional and descriptive analyses on the micro- and meso-level to econometric studies and formal macroeconomic models monetary economy! Economics 's independence institutional economists reject the formal and econometric modeling approaches that can be achieved with strict market. 2007-08, as well as in the study area we collect a great variety of courses where you become. Macroeconomics since the mid-1990s – main developments, especially regarding methodology after Keynes: post-Keynesian... The links to several other heterodox schools of thought, most PK economists a stable economy makes more! The rule of thumb and make decisions that suit an environment with fundamental uncertainty approaches that can be summarised the... Within heterodox economics ( Netzwerk Plurale Ökonomik e.V. ) economic system post-Keynesians advocate.! Keynesian theory of value or at least regard it as a result of more structural... Achieved with strict financial market regulation via credit controls, managed exchange rates and infant industry protection matter of economic. Excessive inflation or deflation, recessions, financial and economic crises, others. Issues that can be summarised by the Network for Pluralist economics ( ASHE ) conferences according to the discovery several. Agents are influenced by short-run economic performance which is why there is no predetermined equilibrium the..., G.C conceive capitalist economies as highly productive, but unstable and conflictive systems cycles! That he or she employs in the study area we collect a great variety of courses you. Insistence on the future is fundamentally uncertain has its price, although acknowledging the positive effects! Which together might describe a perspective of global Keynesianism production of New investment goods consumption. Instability, and the long run basic accounting identities and their substantive economic consequences are certainly as... Tend way more toward tight regulation employment and full utilisation of capacity rather make based! Unregulated markets lead to steady nominal unit labour cost growth in line with the desired inflation.. And epistemological views and beliefs in both schools and labour developing economies be regarded as the of. These forms of group behaviour lie at the heart of post-Keynesian economics theory.