Post-Keynesian economics

Post-Keynesian economics
Name	Post-Keynesian economics
School tradition	Heterodox economics
Notable ideas	Endogenous money, fundamental uncertainty, principle of effective demand, monetary theory of production
Year	1940s–present
Field	Macroeconomics, Monetary economics
Influenced	Modern Monetary Theory, Stock-flow consistent modeling

Post-Keynesian economics is a heterodox school of economic thought that builds upon the work of John Maynard Keynes, Michal Kalecki, and Joan Robinson. It emphasizes the role of fundamental uncertainty, historical time, and the monetary nature of modern capitalist economies. The tradition is highly critical of mainstream neoclassical synthesis and New Keynesian economics, arguing they misinterpret Keynes's core insights.

Origins and development

The foundations were laid in the 1940s and 1950s by economists at the University of Cambridge, such as Joan Robinson, Nicholas Kaldor, and Piero Sraffa, who were critical of the emerging neoclassical synthesis of Paul Samuelson and John Hicks. Key early texts include Robinson's *The Accumulation of Capital* and Kaldor's work on growth and distribution. In the United States, the tradition was advanced by Hyman Minsky at Washington University in St. Louis and Paul Davidson, a founder of the *Journal of Post Keynesian Economics*. The Cambridge capital controversy was a pivotal intellectual battle against neoclassical economics, led by Robinson and Sraffa against Robert Solow and Paul Samuelson.

Core theoretical principles

Central principles reject the axioms of mainstream economics, emphasizing the principle of effective demand as determining output and employment, not flexible prices. Money is not a neutral veil but is created endogenously by the banking system, a concept developed by Nicholas Kaldor and Basil Moore. The economy is viewed as a monetary theory of production, where production begins with finance from banks. Investment, driven by "animal spirits" and facing fundamental uncertainty as described by Frank Knight, is the primary volatile driver of the business cycle. Income distribution between wages and profits is a central determinant of aggregate demand, influenced by the work of Michal Kalecki.

Methodological approaches

Methodology stresses realism, rejecting methodological individualism and equilibrium analysis in favor of analyzing economies in historical, irreversible time. It employs stock-flow consistent modeling, pioneered by Wynne Godley, to ensure accounting coherence across sectors. Empirical analysis often focuses on the financial structures of economies, following the tradition of Hyman Minsky's *Financial Instability Hypothesis*. The approach is inherently interdisciplinary, drawing on insights from institutions like the Levy Economics Institute and employing narrative and econometric analysis to study evolving economic systems.

Key schools of thought

Several distinct strands exist within the broader tradition. The **Cambridge (UK) school**, centered on Robinson, Kaldor, and Richard Goodwin, focused on growth, distribution, and capital theory. The **American (or Fundamentalist Keynesian) school**, associated with Davidson and Minsky, emphasizes uncertainty, money, and financial instability. The **Kaleckian school**, based on the work of Michal Kalecki, provides a rigorous framework integrating class conflict, monopoly power, and effective demand. The **Sraffian school**, or Neo-Ricardianism, led by Sraffa, provides a critique of neoclassical value theory and a revival of classical economics.

Policy implications

Policy prescriptions are activist and often radical, prioritizing full employment and financial stability over price stability. They advocate for permanent functional finance and job guarantee programs, ideas influential in Modern Monetary Theory. Strict regulation of the financial system, including Glass-Steagall Act-style separations, is urged to curb the instability highlighted by Minsky. Incomes policies, including coordinated wage setting, are seen as tools to control inflation without causing unemployment, contrasting with the use of interest rates by the Federal Reserve or European Central Bank. International policy supports capital controls and reform of institutions like the International Monetary Fund.

Criticisms and debates

Mainstream economists from the University of Chicago and Massachusetts Institute of Technology criticize the tradition for lacking a unified, formal microfoundational basis. Debates exist internally, such as between the Sraffian and Kaleckian camps over the theory of value and distribution. Some heterodox economists, including certain Marxists, argue it underemphasizes class conflict and the labor theory of value. Its policy proposals are often politically contentious, facing opposition from proponents of austerity and central bank independence at forums like the World Economic Forum.

Category:Heterodox economics Category:Keynesian economics Category:Macroeconomics