Book review of Jefferson, Therese and King, John E.: Post Keynesian Economics: Key Debates and Contending Perspectives

It is often argued that what marks the difference between Keynesian macroeconomics and new classical macroeconomics (the first installment of dynamic stochastic general equilibrium models) is the presence of microfoundations. These are deemed to be absent in the Keynesian approach, but central to the new classical one. The aim of my paper is to critically discuss this view. Lucas and Sargent defined the microfoundations requirement as consisting of two elements, optimizing behavior and market clearing. I claim that an alternative, weaker, definition is conceivable, which can be traced back to Hayek and Patinkin. According to them, the microfoundations requirement consists of a single criterion, optimizing planning. This definition, I claim, is better than the new classical one. Next, I examine whether Keynesian macroeconomics, which admittedly does not abide by the Lucas-Sargent definition, does accord with the Hayek-Patinkin approach. My conclusion is that Keynes’s General Theory is indeed microfounded in this sense, although no single conclusion can be drawn for Keynesian models in general.

In the wake of the global financial crisis, Keynesianism has had something of a revival. In practice, governments have turned to Keynesian policy measures to avert economic collapse. In the theoretical area, mainstream economists have started to give grudging attention to Keynesian perspectives previously dismissed in favor of New Classical theories. This theoretical and practical shift is taking place at the same time that environmental issues, in particular global climate change, are compelling attention to alternative development paths. Significant potential now exists for “Green Keynesianism†-- combining Keynesian fiscal policies with environmental goals. But there are also tensions between the two perspectives of Keynesianism and ecological economics. Traditional Keynesianism is growth-oriented, while ecological economics stresses limits to growth. Expansionary policies needed to deal with recession may be in conflict with goals of reducing resource and energy use and carbon emissions. In addition, long-term deficit and debt problems pose a threat to implementation of expansionary fiscal policies. This paper explores the possibilities for Green Keynesianism in theory and practice, and suggests that these apparent contradictions can be resolved, and that Green Keynesian policies offer a solution to both economic stagnation and global environmental threats.

The present article contributes to the strand of recent literature devoted to reconstruction of John Maynard Keynes’s operations in commodity markets, currencies and stock exchange markets. Specifically, our work offers, for the first time, a comprehensive account of Keynes’s personal dealings in wheat futures in the market places of Winnipeg, Chicago and Liverpool in the years from 1925 to 1935. Our reconstruction of Keynes’s trading activity benefits from archival research at King’s College (Cambridge, uk) where the Keynes Papers are kept. Moreover, in order to form a full picture of the markets in which Keynes was operating we reconstructed the historical series of spot and future prices. The result marks an advance in thorough examination of Keynes’s speculative style in a complex international environment, as was the wheat futures market in the interwar period. One of the main findings of the article is the fact that Keynes adopted a completely different strategy when operating on the North-American markets in the 1920s from the approach he followed trading on the Liverpool market in the 1930s. In the former case he tried to anticipate reversal in the price trend, aiming at ‘beating the market’ and acting prevalently as a short-term investor. In the latter, he followed a long-term roll-over strategy (that is, with renewal of long positions) more consistent with his own theoretical representation of the speculator as a «risk-bearer» (Keynes 1923). Our reconstruction of Keynes’s operations in the wheat futures markets constitute further confirmation of the view – shared in the literature (Chambers and Dimson 2013, Marcuzzo and Sanfilippo 2016) – that a change occurred in Keynes’s speculative style (both in stocks and in commodities) around the beginning of the 1930s, when he abandoned a short-term type investment behaviour in favour of a long-term investor perspective.

Exegetical study of the economics of Hayek and Keynes are active research industries in the form of the neo-Austrian and Post-Keynesian research programmes respectively. Often it would appear that these efforts would benefit from an underlying methodological orientation. It is our argument that General Systems Theory (GST) is an approach conducive to synthesising the various insights provided by the two schools. The case is made along two lines. The first is the study of cognitive processes which is an important component of GST. The second related element is the theory of institutions as responses to the bounds on the rationality of agents. Our broad conclusion is that the economics of Hayek fits relatively easily in the General Systems paradigm as Hayek was an illustrious member of a cohesive school. The economics of Keynes, on the other hand, was an attempt at “escape from Marshallian habits of thought”. It is generally accepted that Keynes only imperfectly made the transition to an alternative methodology. Consequently, the Post-Keynesian research enterprise would benefit more from the ambit of a consistent methodology like GST.

Keynes’ ‘fallacy of composition’ and, later, the ‘Santa Fe perspective’ have shown that the economy may be defined as a “complex adaptive system”, since it is not something given but results from constantly developing interactions among heterogeneous individuals. Endorsing the definition of ‘dynamic complexity’, the paper analyses the extent to which Keynes’ notion of complexity is coterminous with the one developed at the Santa Fe Institute. An analysis of the role of expectations in the General Theory, along with the dimension of time, history and path-dependence, makes it possible to conceive Keynes’ work as an open, complex evolving system and to establish a direct connection with the ‘Santa Fe perspective’. However, Keynes’ “two-stage methodology” which allows the analyst to deal with complex organic material without resorting to reductionism by means of ordinary language involves the inherent non-measurability of complex magnitudes which does not depend on the individual’s limited ability to measure the complex object. This feature may cast some doubts on the inheritance of Keynes’s methodology by the ‘Santa Fe perspective’, which attempts to handle complexity through simulation techniques implicitly based on a sophisticated mathematical formalism.

The American Post Keynesians – those who attach importance to the capital ‘P’ and the absence of a hyphen between ‘post’ and ‘Keynesian’– claim to be Keynes' most literal interpreters or the ‘truest’ Keynesians (Holt et al. 1998: 17). This paper compares the Post Keynesian interpretation of the Principle of Effective Demand, i.e. the D/Z-model, with Keynes' own presentation in chapter 3 of the General Theory– and finds substantial differences. A re-interpretation of the D/Z-model is offered that would bring it into line with chapter 3.

Two diametrically opposed positions have developed in the literature as regards the impact of the Great Depression on Keynes’s economics: while ‘externalists’ consider the Great Depression as the determining cause of Keynes’s revolution, other subscribe to an ‘internalist’ view of the development of Keynes’s thinking from the 'Treatise on Money' to the 'General Theory'. The article suggests a third possibility, namely that Keynes’s ‘method’, and methodological continuity throughout his writings, allow the possibility to adapt theories to changing times and circumstances, that is, to different quaesita. It thereby emphasizes that, though elaborated having in mind the theoretical framework of the 'Treatise on Money', Keynes’s early articles on the Great Depression tell much about the future as well as the past of his theoretical journey. In particular, the article illustrates two ‘big pictures’ providing the background for the Keynes’s evolving thoughts on the main issues of capitalism. The criticality of investment decisions under conditions of irreducible uncertainty, and the ineliminable tensions between creditors and debtors, also at the international level, endangering national autonomy and policy space, are here discussed as two main constants in the evolution of Keynes’s thinking, providing insights that might be relevant to interpret the current recession.

The aim of this paper is to recount the ebbs and flows of Keynesianism over the history of macroeconomics. The bulk of the paper consists of a discussion of the main episodes of the unfolding of macroeconomics ( Keynesian macroeconomics, monetarism, new classical macroeconomics, real business cycle models and new neoclassical synthesis models) against the background of a distinction between Keynesianism as a ‘moderately conservative’ (Keynes’s words) vision about the working of the market system and Keyneisanism as a conceptual apparatus. Particular attention is given to the contrast between Keynesian and Lucasian macroeconomics. The paper ends with a few remarks about the impact of the present crisis on the development of macroeconomic theory.

Today’s macroeconomic theoretical, empirical and normative analysis is essentially split between the scholars who base their work on the first principles of the Walrasian paradigm of perfectly competitive markets —and do not attach any scientific value to Keynesian economics at large —and those who believe that Keynes’s view of possible misfunctioning of market economies was fundamentally correct though Keynesian economics needs accurate restructuring at the (micro)foundations level. The latter approach, that following Greenwald and Stiglitz (1987), is known as New Keynesian (NK) economics, is usually identified with a large body of literature concerned with imperfect competition and the micro foundations of real or nominal rigidities as if it were the only ‘typical’ NK brand (e.g. Gordon 1990). With this paper we wish to draw attention to a different

This is the first of two volumes celebrating Keynes's contribution to economics, and the development of post Keynesian economics in recent years. It reinstates the importance of Keynesian economics and its revival since the end of the 1980s, and the book's authoritative chapters are presented by an outstanding group of international contributors.

A lot of discussion lately has been about how to present Keynesian economics in the principles course. Some new principles textbook authors treat Keynesian economics as an historical artifact, no longer relevant to current economic events.' Others, such as McConnell and Brue (1999), continue to make Keynesian economics the core of students' understanding of macro. I am firmly on the side of saving Keynesian economics, or at least something similar to what we now call Keynesian economics. I explain in this article what I mean by that, but first, I present the arguments that have been put forward for dumping Keynesian economics. Four reasons have been generally suggested.

I believe myself to be writing a book on economic theory, which will largely revolutionise – not, I suppose, at once, but in the course of the next ten years – the way the world thinks about economic problems. Keynes to George Bernard Shaw (quoted in Skidelsky 1992: 520) [A]n element of myth-making is involved whenever the phrase ‘Keynesian revolution’ is deployed . . . the rearrangement of ideas to which it refers was neither revolutionary in the usual sense of the word nor by any means uniquely Keynesian in origin. (Laidler 1999: 3) INTRODUCTION The Keynesian revolution is the central feature of twentieth-century macroeconomics. It has been praised, condemned and subjected to extensive historical analysis, sometimes being used as a case study in the philosophy of science. The aim of this essay is not to ask what the Keynesian revolution 'really' was, for that would be to add but one more turn to a debate that has continued for seven decades, but to explore how and why economists' understanding of the Keynesian revolution has changed in the seventy years since the publication of the General Theory . This is important for at least three reasons. It demonstrates some of the many ways in which Keynesian economics has been understood, for though there may be near universal agreement that there was, for good or ill, a Keynesian revolution, there has been little agreement over precisely what it comprised. It helps distinguish Keynes's economics from the 'Keynesian economics' of his successors; and it helps explain why it is superficially easy to use Keynes to illustrate propositions about the philosophy of science but very difficult to make such applications convincing.

With regard to the effect of growth on the balance of payments of a country, the conclusion of the Keynesian theory of income determination sharply differs from that of the monetary theory. This article suggests an integrated approach towards the derivation of the import function and the balance of payments equation for a money‐using economy from the utility‐maximising behaviour of individuals. Thereby, it shows that the difference between the conclusions of the two theories results from an incorrect specification of the balance of payments equation in the Keynesian theory.

Rising inequality in income and wealth distribution and a huge waste of human resources (in the form of labor unemployment and underemployment) has once again led to a focus on Keynesian policies against poverty, including that of the State acting as an Employer of Last Resort advanced by Minsky. After briefly summarizing Minsky’s proposal and roughly calculating the financial resources needed to implement it in the case of Italy, the aim of this article is to discuss the obstacles that such a proposal may encounter and the possible measures to be adopted to overcome them. A conclusion will be drawn that a mix between Keynesian demand policies and the ELR system may be the best measure to guarantee full employment, provided that an institutional framework that is favorable to this objective is established.

Reasserting the Role of Keynesian Policies for the New Millennium