post-Keynesian Perspective Research Articles

Piketty in the light of Pasinetti and Foley: Income distribution, economic growth and financial fragility

ABSTRACT The paper discusses the hypothesis that the functional distribution of income is not necessary stable along the growth path of a capitalist economy. We reviewed Pasinetti and Foley models showing that if we use the traditional definition of capital, i.e., capital as the value of productive resources (i) r > g is a necessary condition for the existence of balanced growth, and it will not lead to an explosive process of income concentration and (ii) r > i is a necessary condition for a financially robust growth path. Thus we conclude that from a post-Keynesian perspective, Piketty's argument that the root of the increase of inequality in capitalism is that the capital return rate is higher than the growth rate of the economy is wrong.

Hyperinflation in a small open economy with a fixed exchange rate: A post Keynesian view

ABSTRACTThis paper examines the emergence of hyperinflation in a small open economy with a fixed exchange rate from a post Keynesian perspective. Three variables play key roles: distributive conflict, external debt, and expectations about the exchange rate. First, we propose a short-run Kaleckian macro model. Then, we study the long-run behavior of the model by endogenizing the price level and foreign indebtedness. We conclude that the existence of expectations about the nominal exchange rate is crucial to explaining the emergence of hyperinflation.

RELACIÓN ENTRE BENEFICIOS E INVERSIÓN: CRECIMIENTO ECONÓMICO DE ESPAÑA 1994-2007

This study revives the analytical capacity of the profit-investment ratio to explain economic growth in Spain between 1994 and 2007 from a post-Keynesian perspective. The analytical framework revolves around the variables that determine profit and accumulation rates. An aggregate analysis of the Spanish economy confirms a positive ratio between profit and accumulation rates. However, a disaggregate analysis (seven sectors) shows that this positive relationship is only present in the two sectors tied to the real estate bubble (construction and financial services), which also drove economic growth during this time period, and the mining-supplies sector. This outcome allows us to characterize the development model followed by the Spanish economy during this time period.

Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective

ABSTRACTThe paper offers an account of the Euro crisis based on post-Keynesian monetary theory and its typology of demand regimes. Neoliberalism has transformed social and financial relations in Europe but it has not given rise to a sustained profit-led growth process. Instead, growth has relied either on financial bubbles and rising household debt (‘debt-driven growth’) or on net exports (‘export-driven growth’). In Europe the financial crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and monetary policy. This neoliberal economic policy regime in conjunction with the separation of monetary and fiscal spheres has turned the financial crisis of 2007 into a sovereign debt crisis in southern Europe.

A post Keynesian framework of exchange rate determination: a Minskyan approach

This paper proposes a general framework to analyze exchange rate determination from a post Keynesian perspective based on chapter 17 of the General Theory. The paper shows that this framework accounts for both the importance of context and time-specific expectations put forward by existing post Keynesian exchange rate theory, and for the hierarchic and structured nature of the international monetary system that is crucial to understanding exchange rate movements in developing and emerging countries (DECs). To analyze these currency hierarchies, the paper presents a novel Minskyan approach that emphasizes the structural determinants of these hierarchies and currency positions in international debtor–creditor relations. This approach can better account for DECs’ continued monetary subordination and points to the endogenous and self-perpetuating nature of international monetary hierarchies.

Sustainable development in a post Keynesian perspective: why eco-development is relevant to post Keynesian economics

While sustainable development is a unanimously accepted watchword today, the article aims to show that the post Keynesian school, although it did not emphasize environmental issues and sustainable development as such, has tools that make it relevant on this topic. Indeed, post Keynesian sustainable development can be close to Ignacy Sachs’s eco-development, which is inspired by Michal Kalecki. Thus, post Keynesianism and eco-development share the same position related to economic growth. They meet, via the concept of radical uncertainty, on the importance of the precautionary principle. If the implications of the principle of effective demand seem to oppose them, these divergences can be easily overcome.

Money as metaphor

Purpose – The purpose of this study is to examine two rival narratives regarding the nature and evolution of money with reference to metaphor. Design/methodology/approach – The article draws on theoretical literature on money. Post-Keynesian perspectives are given consideration due to the particular attention that this school has given to money. Findings – A crucial divide in the understanding of money is interpreted in terms of two different narratives. We conclude that the narrative of money as credit has greater explanatory power, but that the commodity narrative, which is metaphorical in nature, is easier to comprehend and conceptualize. Research limitations/implications – This study has been qualitative in nature; further research would require specification of a linguistic methodology, including selection and analysis of a corpus. A process for detecting metaphors within a selected corpus would also need to be established. Moreover, the discussion of the commodity metaphor as a normative theory has not considered the moral aspects of different views on debt and credit. Social implications – Study of metaphor should shed light on basic assumptions behind public policy choices. This should enhance the general understanding of related debates, for example on public spending (i.e. austerity versus stimulus). Originality/value – This article examines a familiar debate in economics using the methods of linguistics. The approach may also serve a function as a pedagogical tool.

Book Reviews

Twenty-one papers explore approaches and issues in post-Keynesian economics, with a special focus on critiques and methodology. Papers discuss the microfoundations of macroeconomics; post-Keynesian economics, rationality, and conventions; methodology and post-Keynesian economics; post-Keynesian perspectives on some philosophical dimensions of John Maynard Keynes's economic thinking; two post-Keynesian approaches to uncertainty and irreducible uncertainty; interdisciplinary applications of post-Keynesian economics; post-Keynesian economics, critical realism, and social ontology; the traverse, equilibrium analysis, and post-Keynesian economics; a personal view of post-Keynesian elements in the development of economic complexity theory and its application to policy; how sound are the foundations of the aggregate production function?; Karl Marx and the post-Keynesians; macroeconomics and the L-shaped aggregate supply curve; a post-Keynesian perspective on the rise of central bank independence—a dubious success story in monetary economics; the post-Keynesian critique of the mainstream theory of the state and the post-Keynesian approaches to economic policy; a modern Kaleckian–Keynesian framework for economic theory and policy; post-Keynesian principles and economic policies; post-Keynesian distribution of personal income and pay; environmental economics and policy; theorizing about post-Keynesian economics in Australasia—aggregate demand, economic growth, and income distribution policy; the neoclassical sink and the heterodox spiral—why the twin global crisis has not transformed economics; and Keynesianism and the crisis. Harcourt is Emeritus Reader in the History of Economic Theory and Emeritus Fellow in Jesus College at Cambridge University and Professor Emeritus at the University of Adelaide. Kriesler is Associate Professor in the School of Economics at the University of New South Wales.

Mr. Keynes and the neo-Schumpeterians: Contributions to the analysis of the determinants of innovation from a post-Keynesian perspective

Abstract The purpose of this paper is to discuss the importance of knowledge, both tacit and codified, in the formation of the state of long-term expectations that drive firms’ decisions to search for innovation and to investment in R&D. The paper takes the post-Keynesian theory as reference, associating it with the neo-Schumpeterian analysis of innovation dynamics. First, it is argued that knowledge plays a crucial role in building agents’ confidence, emphasizing that radical innovations are more dependent on the accumulation of codified knowledge, given the higher degree of uncertainty associated with this type of innovation, while incremental innovations are more dependent on tacit knowledge about the current market conditions and technological trajectory. Second, it is argued that the accumulation of knowledge and the constant introduction of innovations foster the creation of a convention to innovate, which facilitates the decision to pursue innovations by influencing long-term expectations.

A reply to Amitava Dutt: the role of aggregate demand in the long run

In an article in this journal, Amitava Dutt comments on our 1999 paper, ‘Being Keynesian in the Short Term and Classical in the Long Term: The Traverse to Classical Long-term Equilibrium’, contending that aggregate demand may affect the long-term equilibrium. We agree to some extent but contend that these mechanisms do not question the fundamental difference between the classical-Marxian perspective (in which u gravitates in the long term around uˉuˉ ) and the post-Keynesian perspective (in which the long-term equilibrium position of u depends on the level of aggregate demand). The basic controversy harks back to Harrod’s investment function, in which the only long-term equilibrium is u = uˉuˉ . We solve the problem of Harrodian instability in reference to the action of monetary authorities and governments. Dutt’s defence of the post-Keynesian investment function is unconvincing.

Price competition, inter-firms relationships, bank discrimination and wage inequalities: a post keynesian perspective

The article analyses the impact of price competition on inter-firms relationships, bank discrimination and wages inequalities in a Post Keynesian micro/macro perspective. It engages in the debate on the effect of price competitive pressures on profit margins. Underlying the ability of firms to transfer the constraint of price pressures to other agents in the economy, and the role of credit discrimination by banks, the paper focuses on the case of a transfer to suppliers and/or subcontractors. We then build a macroeconomic model of a disaggregated economy to show the global consequences of such a mechanism. Simulations suggest that price competition doesn’t lead to a reduction in profit margins but rather to increased wage inequalities. Furthermore, the effect on employment of price pressures is all the more reduced that these price pressures are transferred to other agents.

Fiscal policy and rebalancing in the euro area: A critique of the German debt brake from a post-Keynesian perspective

The German debt brake is often regarded as a great success story and has therefore served as a role model for the Euro area and it?s Fiscal Compact. In this paper we fundamentally criticise the debt brake. Firstly, we show that it suffers from serious shortcomings and that its success is far from certain even from a mainstream point of view. Secondly, we show that, from a Post-Keynesian perspective, the debt brake completely neglects the requirements for fiscal policies of member countries in a currency union like the Euro area. It will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area. Thirdly, we show that alternative scenarios, which could avoid the deflationary pressures of the German Debt Brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behaviour in Germany.

Fiscal Policy and Rebalancing in the Euro Area: A Critique of the German Debt Brake from a Post-Keynesian Perspective

The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany. The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany.

Post-Keynesian Perspectives on Economic Development and Growth

As history, institutions, social and political forces specific to any economy have a profound effect on that economy’s dynamics, it is important to understand how these have evolved with the development of capitalism. The classical economists analysed economies with labour surpluses, which kept wages at subsistence levels, encouraging profits and therefore economic growth. Lewis extended this model to developing economies, with the labour surplus coming from the agricultural sector. With growth and development, the labour surplus becomes absorbed into the labour force, eventually leading to upward pressure on wages This is associated with the Keynesian era, where the level of effective demand becomes an important determinant of employment and growth. As a result of further development, competitive capitalist economies have evolved to the monopoly capital stage, where oligopolistic corporations influence the dynamics of the economy. More recently, we have seen the increased prominence of the financial sector, which has both led to and been influenced by globalisation.

A Post Keynesian Perspective on Industry Assistance and the Effectiveness of Australia’s Carbon Pricing Scheme

AbstractAustralia’s carbon pricing scheme protects the profits of polluters and, as a consequence, has a negligible impact on the carbon emissions emanating from Australian industries. I concentrate on the assistance given to emissions-intensive, trade-exposed industries and use a post Keynesian approach to explain that, despite the rhetoric, industries and firms will not move offshore under a carbon price and industry assistance is unnecessary. When assistance is given, profits are protected and could increase in certain industries, which occurred in the comparable European emissions trading scheme. In orthodox economic theory, despite this negligible impact on profits, any method of pricing carbon causes a reduction in emissions because firms seek to adjust technology and factor inputs at the margin and abate until marginal abatement costs equal the carbon price. However, from a post Keynesian perspective, the government’s prediction of a transformed economy and clean energy future will not occur unless the carbon pricing policy reduces the corporate profits of emitting firms. Thus, complementary policies are required to take the burden of reducing emissions off the more symbolic carbon market established. I further argue that a carbon tax without any industry assistance is a preferred approach and that where plant shutdown does occur, carbon emissions around the world will fall and workers could be compensated at a far smaller cost than the adjustment assistance given to industries in the policy’s current form.

O "novo" consenso macroeconômico e alguns insights da crítica heterodoxa

O objetivo deste trabalho é fazer um survey dos principais papers e argumentos que compõem o chamado "novo" consenso macroeconômico, a fim de elucidar o que alguns autores apresentam como uma nova etapa da História do Pensamento Econômico. Nesse caso, destacam-se os principais esforços na busca pela convergência entre as distintas teorias que suportam essa abordagem, bem como os principais autores que defendem ser essa convergência não só possível, mas desejável. Posteriormente, são sumarizados alguns insights da crítica heterodoxa, em especial, as de cunho pós-keynesiano. Sendo assim, o trabalho amplia a discussão proposta, nesta revista, por Arestis e Sawyer (2008). Observa-se ainda que grande parte das críticas feitas a este novo consenso são as mesmas que permeiam o debate entre Keynes e os (neo) clássicos em meados da primeira metade do século XX. Por fim, as conclusões apontam no sentido de mostrar a necessidade de consolidar um construto teórico mais bem articulado para ambas as abordagens.

O debate sobre a redução do déficit fiscal no Brasil: uma crítica pós-keynesiana

O artigo analisa o debate sobre a redução do déficit fiscal brasileiro com base em uma perspectiva pós-keynesiana. Após resumir as conclusões das controvérsias sobre o papel da moeda e do Estado que constituem a base dos desacordos quanto à política fiscal e à política monetária e, consequentemente, sobre as prescrições de zeragem do déficit fiscal, o artigo ilustra esse debate com estimativas de modelos de Vetores Autorregressivos (VAR), dando razão ao lado heterodoxo da controvérsia.

The New Consensus from a Traditional Keynesian and Post-Keynesian Perspective A worthwhile foundation for research or just a waste of time?

L’article examine dans quelle mesure le modèle d’équilibre général dynamique et stochastique, souvent qualifié de «nouveau consensus keynésien» est compatible avec l’approche keynésienne traditionnelle ou avec l’approche post-keynésienne. L’argumentation qu’il développe est la suivante : alors qu ’à première vue les modèles EGDS semblent incorporer un certain nombre d’éléments keynésiens ou post-keynésiens la monnaie endogène, la nécessité de l’intervention de la banque centrale - les mécanismes à l’œuvre sont totalement incompatibles avec la conception keynésienne et post-keynésienne du fonctionnement de l’économie globale».

Structural VAR Analysis of Debt, Capital Accumulation, and Income Distribution in the Japanese Economy : A Post-Keynesian Perspective

Structural VAR Analysis of Debt, Capital Accumulation, and Income Distribution in the Japanese Economy : A Post-Keynesian Perspective

On the institutional safeguarding of monetary policy – a post-Keynesian perspective

The paper takes a fresh look at the governance of the most important macroeconomic objectives: price stability and full employment. On the basis of a post-Keynesian market constellations approach, the necessity and institutional requirements of the coordination of macroeconomic policy areas in general and an optimal central bank setting in particular are analysed, and an amelioration of monetary policy of the neo-Keynesian 'new macroeconomic consensus' is provided.