American Post Keynesians Keynesian

American Post-Keynesians

The American branch of post-Keynesian theory is more diffuse than the British, but all its elements are variations on the theme that the economy is "in time." Alfred Eichner has extended the microeconomic analysis of the firm, which he calls the megacorp, arguing that it determines investment internally from re­tained profits. Hence, to understand investment—and thereby total output—one must understand the modern corporation.

In Money and the Real World, Paul Davidson (1930- ) contends that understanding the role of money is central to understanding how the macro-economy works and that neoclassical economics has not adequately addressed its role. In developing the post-Keynesian role of money, he emphasizes the existence of irreversible time and true uncertainty, which cannot be reduced to a probability distribution and hence cannot be changed to risk and then to certainty equivalents. These two interrelated characteristics of the economy have "led man to develop certain institutions and rules of the game, such as (i) money, (ii) money-contracts and a legal system of enforcement, (iii) sticky money-wage rates, and (iv) spot and forward markets." Thus, institutions change the way in which the macroeconomy operates. Davidson's view resembles somewhat that of Hyman Minsky (1919-1997), another well-known post-Keynesian, who argues that the financial system is like a house of cards in imminent danger of collapse.

Post-Keynesian growth theory emphasizes methodological issues and, there­fore, is a matter of perspective. It emphasizes growth as an important aspect of the economic process, whereas until recently mainstream economists emphasized static issues. For example, Roy Harrod and Evsey Domar's analysis of growth, which in the 1950s was a fundamental part of mainstream macroeconomics, now rarely appears in mainstream intermediate macroeconomics textbooks. Instead new books discuss stable, endogenous growth. This partially accounts for the post-Keynesian focus on instability, because the Harrod-Domar model suggested that equilibrium in the economy is always on a knife-edge bordering boom and bust.

In post-Keynesian work as a whole, one sees a consistency of conceptualiza­tion, if not of models. An enduring concept is that the economy is not stable: the invisible hand of the market does not work as well as neoclassical theory suggests. It follows that post-Keynesians see a much stronger role for government action in correcting the problems of capitalism than does orthodox theory. Post-Keynesians are best known for their support of tax-based incomes policies (TIP).

The Mainstream Response to the Post-Keynesians

The mainstream's response to American post-Keynesians has been to completely disregard them or to assume the attitude "What else is new?" Robert Solow sums it up as follows:

I am very unsympathetic to the school that calls itself post-Keynesian. First of all, I have never been able to understand it as a school of thought. I don't see an intellectual connection between a Hyman Minsky, on the one hand, who happens to be one of the oldest friends I have, and someone like Alfred Eichner, on the other, except that they are all against the same thing, namely the mainstream, whatever that is.

The other reason why I am not sympathetic is that I have never been able to piece together (I must confess that I have never tried very hard) a positive doctrine. It seems to be mostly a community which knows what it is against but doesn't offer anything very systematic that could be described as a positive theory. I have read many of Paul Davidson's articles and they often do not make sense to me. Some of post-Keynesian price theory comes forth from the belief that universal competition is a bad assumption. I have all my life known that. So I have found it an unrewarding approach and have not paid much attention to it.

Mainstream economists also argue that "there is no correct neo-Ricardian proposition which is not contained in the set of propositions which can be generated by orthodoxy."