Anti-Keynesian Views: Fiscal and Monetary Guidelines

Özlen Hiç-Birol,Ayşen Hiç-Gencer

doi:10.7603/s40706-014-0027-5

Abstract

AbstractIn this article, we will cover the main anti-Keynesian views and macroeconomic systems that arose in the post Keynes period as well as their fiscal and monetary policy guidelines. As is known, the early Classical economists introduced a macroeconomic system based on the Quantity Theory and Say’s Law resulting in automatic full-employment equilibrium; and finally after 1929-1934 Great World Depression, the Keynesian System was introduced as a “revolution” (Keynesian Revolution) in theory and practice. As a result of the Keynesian policies implemented, European countries and the United States not only got over the Great World Depression but also in the years following the World War II, they have observed a fast and stable growth for a long time. Moreover, cyclical fluctuations have been controlled to a great extent. Even so, at the stage when the Keynesian System was introduced, anti-Keynesian views and macroeconomic systems were immediately introduced. Intense academic discussions between advocates of these views and the Keynesian economists have continued up until today. Meanwhile, many economists such as J.R. Hicks, R.F. Harrod, N. Kaldor, M. Kalesci, A.W. Philips, A. Hansen, P.A. Samuelson, E. Domar, J. Tobin, R. Solow, A.M. Okun, W. Helier, G. Ackler, F. Modigliani, and R. Musgrave and many others have developed and defended the Keynesian System from different aspects. We can characterize significant anti-Keynesian views and macroeconomic systems as the “Counter-Revolution”.

Highlights

Prominent anti-Keynesian views and systems could be classified under the following headings below: A
The Generalized Classical System concludes that the economy would reach full-employment equilibrium automatically
According to Don Patinkin, even if the Pigou Effect does not occur in the short-run and because of the dynamic effects and changes in the price expectations resulting from this price fall having negative effects on both investment and consumption expenditure; sooner or later, the Pigou Effect will definitely set in, providing automatic full-employment equilibrium in the macro-static analysis

Summary

INTRODUCTION

Prominent anti-Keynesian views and systems could be classified under the following headings below: A. The Generalized Keynesian System works with Keynesian macroeconomic parameters and functional relationships but it assumes full flexibility of prices and wages as well as perfect competition conditions in all markets and refutes the Keynesian investment-saving discrepancy Under these assumptions, the Generalized Classical System concludes that the economy would reach full-employment equilibrium automatically. According to Don Patinkin, even if the Pigou Effect does not occur in the short-run and because of the dynamic effects and changes in the price expectations resulting from this price fall having negative effects on both investment and consumption expenditure; sooner or later, the Pigou Effect will definitely set in, providing automatic full-employment equilibrium in the macro-static analysis. This new approach combining the Keynesian and the Classical views is called the NeoClassical Synthesis (Paya, 1994)

Monetarism

The New Classical School

KEYNESIAN SYSTEM AND GUIDELINES OF THE KEYNESIAN FISCAL AND MONETARY POLICIES