Work Of Keynes Research Articles

Post-Keynesian Economics: New Foundations by Marc LavoieChapter 2: Theory of Choice

ABSTRACT This work presents and discusses chapter two of Marc Lavoie’s book Post-Keynesian Economics: New Foundations. It begins by analysing the concepts of uncertainty and rationality which are extremely important for the post Keynesian approach, and for economic theorizing in general. The notions of fundamental uncertainty and the closely related concept of procedural rationality, are employed in order to build the foundations of a theory of household choice. It proceeds by investigating the repercussions of the theory in a lexicographic/hierarchical analytical framework. In this framework, groups consume different goods depending on their respective needs, income effects are more important than substitution effects, and price competition has a secondary role. It is also shown that Lavoie’s approach does not only draw from the work of Keynes and other major post-Keynesian theorists, but also utilizes contributions from other strands of heterodox economics, thus providing an agenda for a possible theoretical synthesis.

The Economists and Monetary Thought in Interwar New Zealand: The Gradual Emergence of Monetary Policy Activism

The emergence of monetary thought in New Zealand after 1914 has not been subject to extensive analysis. This paper remedies this deficit for the interwar period. The focus is upon the propagation of monetary ideas in New Zealand and their intellectual sources. We apply a heuristic in which different monetary doctrines are situated along a continuum between extreme monetary policy ‘activism’ and extreme ‘minimalism’. In the 1920s, New Zealand economists betrayed a minimalist bias across several dimensions: money supply regulation, the role of money and the international monetary transmission process in the business cycle, and the operation of bank-credit allocation mechanisms. Incipient activism in the work of Condliffe and Belshaw was countered by Niemeyer's case for a minimalist central bank. Fisher adopted an anti-reflationist, forced savings approach to the 1930s crisis. Copland, Tocker, Belshaw and Hight downplayed these consequences. Extended debate over Reserve Bank legislation generated new meanings for the phrase ‘monetary policy independence’; it also turned most economists against extreme activism that prevailed from 1938. Throughout the interwar period, New Zealand entertained a vigorous contest of monetary ideas inherited from the work of Keynes, Hawtrey, Cannan, Robbins, and Hayek, though adapted to local conditions.

MALTHUSIAN MOMENTS IN THE WORK OF JOHN MAYNARD KEYNES

ABSTRACTThis article tracks the shifting contours of John Maynard Keynes's invocation of certain ideas associated with Thomas Robert Malthus, between 1914 and 1937 especially. These ‘Malthusian moments’ in Keynes's work form a triptych. In pre-war thinking about global population dynamics as a Malthusian ‘devil’ threatening national political and economic stability, Keynes found optimism in the thought that modern political economy could be repurposed to avoid the horns of such a dilemma. In the 1920s, he moved to consider the international, and particularly European, responses to both population and to the developing Malthusian ‘devil’ of unemployment. Finally, in the 1930s, Keynes's view became increasingly domestic, focusing on ways that these devilish twin problems could be managed by nation-states organized for prosperity and self-sufficiency. Across these moments, Keynes sought to assert the power of past political and economic ideas to aid in the formulation of present policy, by continuously (if rather loosely) invoking the Malthusian trope of ‘effective demand’.

Keynes’s view of deficits and functional finance: a Modern Monetary Theory perspective

The immediate aftermath of the global financial crisis (GFC) was characterised by a resurgence of interest in the work of Keynes. Fiscal policy became at least temporarily acceptable again, in turn leading to government deficits and debt, as a proportion of GDP, reaching levels not seen since before the onset of the neoliberal period. Keynes’s own pronouncements on deficit financing generated renewed interest. Despite the strength of the neoclassical counterattack – which has been relatively successful in reassessing the crisis as a government failure – confidence in orthodox economics has not been fully restored, at least outside the confines of academia. Although the hopes of heterodox economists – that the GFC might mark the beginning of the end of the neoclassical hegemony – have not been realised, the upswing in interest in Keynes’s views has not entirely died away. This paper considers Keynes’s views of deficits and debt and then looks at the controversial area of Keynes’s position vis-à-vis functional finance. The paper concludes by considering how Modern Monetary Theory might increase our understanding of the nature of deficits and debt and thus provide valuable insights which might underpin the use of fiscal policy to pursue public purpose.

The siren call of probability: Dangers associated with using probability for consideration of the future

Many tools for thinking about the future employ probability. For example, Delphi studies often ask expert participants to assign probabilities to particular future outcomes. Similarly, while some scenario planners reject probability, others insist that assigning probabilities to scenarios is required to make them meaningful. Formal modelling and forecasting methods often also employ probability in one way or another. The paper questions this widespread use of probability as a device for considering the future, firstly showing that objective probability, based on empirically-observed frequencies, has some well-known drawbacks when used for this purpose. However, what is less-widely acknowledged is that this is also true of the subjective probability used in, for example, Delphi. Subjective probability is less distinct from objective probability than proponents of its use might imply, meaning it therefore suffers from similar problems. The paper draws on the foundations of probability theory as set out by Kolmogorov, as-well-as the work of Keynes, Shackle, Aumann, Tversky and Kahneman, and others, to reassert the essential distinction between risk and uncertainty, and to warn about the dangers of inappropriate use of probability for considering the future. The paper sets out some criteria for appropriate use.

Reconciling Hayek’s and Keynes’ Views of Recessions

Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions often reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. The model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes’ and Hayek’s views of recessions may be closely linked. In our framework, interventions aimed at stimulating aggregate demand face a trade-off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions, but where some stimulative policies may nevertheless remain desirable.

A Rationale Supporting a Decision by Pope Francis and the Arch Bishop of Canterbury to Remove All Economic Advisors from Any Advisory Role Concerning Church Proclamations on Income Inequality, Unemployment and Social Justice: 'Economics' is Not a Positive Science, But an Ethical System Based on Benthamite Utilitarianism

A Rationale Supporting a Decision by Pope Francis and the Arch Bishop of Canterbury to Remove All Economic Advisors from Any Advisory Role Concerning Church Proclamations on Income Inequality, Unemployment and Social Justice: 'Economics' is Not a Positive Science, But an Ethical System Based on Benthamite Utilitarianism

The Concept of Trust and the Political Economy of John Maynard Keynes, Illustrated Using Central Bank Forward Guidance and the Democratic Dilemma in Europe

Trust is an issue to which Keynesians and post-Keynesians have paid relatively little attention. However, properly understood it is an aspect of almost all activity, including key elements of socio-economic reality. Without trust, market exchange is at the very least problematic, if not impossible. Moreover, trust is intrinsic to a variety of issues with which Keynes, and subsequent Keynesianism have been concerned. In this paper we provide a general social theory conceptualisation of trust and then set out some of the areas where this concept resonates with the work of Keynes in terms of the role of conventions. Conventions quintessentially involve trust and that trust can be unstable, can be withdrawn and can require rebuilding. We illustrate this with reference to central bank policy and the Bank of England's introduction of Forward Guidance. Exploring the problem of trust in the context of banking also highlights a challenge for the continued relevance of Keynes' work. We now live in a neoliberal world and this provides a quite different context for state intervention than was previously the case. Keynes' work is now an argument for the alternative, and as such it requires more than a technical economic argument, it must also address the problem of trust in state policy-makers. We briefly illustrate the challenge this poses with reference to Europe.

Permanent On-The-Spot Job Creation—The Missing Keynes Plan for Full Employment and Economic Transformation

The paper rejects the conventional view that Keynes had an aggregate demand approach to full employment. Instead, it proposes that he advocated a very specific labor demand targeting approach that would be implemented both in recessions and expansions. Modern policies, which aim to “close the demand gap” between current and potential output are inconsistent with Keynes's work on theoretical and methodological grounds. There is considerable evidence to suggest that a permanent program for direct or (in his words) “on-the-spot” job creation is the missing Keynes Plan for full employment and economic transformation. The current crisis presents the social economist with a unique opportunity to set fiscal policy straight along the original Keynesian lines. The paper suggests what specific form such a policy might take.

How to Use Keynes’s Conventional Coefficient of Risk and Weight, c, to Clear Up Misunderstandings and Confusions About Keynes’s Views on the Use on His Principle of Indifference Versus the Use of Laplace’s Principle of Nonsufficient Reason

J M Keynes’s Principle of Indifference is not the same as Laplace’s Principle of Nonsufficient Reason. The application of Keynes’s Principle of Indifference requires that the calculation of the probabilities be based on the existence of positive, symmetrical evidence. This requires that the weight of the evidence, w, be greater than 0.The application of the Principle of Nonsufficient reason has no such restriction on its range of application. Adherents of the Principle of Nonsufficient reason argue, contrary to Keynes’s views ,that probabilities can be based on purely subjective views without any evidence. An examination of the work of R. von Mises, Robert Skidelsky and Murray Rothbard on Keynes in this area shows that existing assessments of Keynes’s work are very deficient.No economist appears to understand the interval based approach to probability undertaken by Keynes in the A Treatise on Probability in 1921.This would explain the great confusion about Keynes's work in the area of decision making.

The neglect of comparison income: An historical perspective

Theories of social comparison have a long presence in the social sciences and have provided many useful insights. In economics, the idea of comparison, aspiration or relative income belongs to this theoretical framework. The first systematic usages of this notion can be found in the works of Keynes and Duesenberry. After these works the concept was relatively ignored by orthodox theorists until its recent re-appearance, mainly in the fields of labour and macroeconomics. To the contrary, however, income comparisons continued to play a role in much of Keynesian inspired and non-mainstream economics literature. In the past few years it has made a strong comeback in the literature of job satisfaction and of the economics of happiness. This paper attempts to trace the development of the concept in the modern history of economic thought. It also discusses the main theoretical implications of adopting income comparisons and possible reasons for its relative disregard by orthodox economics.

Keynes and India, 1909–1913: a study on foreign investment policy

Keynes's work on India before the First World War concentrated on analysis of the gold exchange standard and the stabilization of the rupee external value. Indian monetary arrangements were framed into a plan for foreign investment, implemented by the India Office in London. This policy, which was a typical example of public control over investments, occasioned Keynes's first job as an applied economist. Although neglected by Keynesian scholarship, this learning by doing experience is likely to have played a significant role in the young economist's training and education.

Les méthodes « post-keynésiennes » et l’approche post-classique

The two most basic non-metaphysical materials used by economists to erect their theoretical structures are prices and quantifies. Two visions of reality are contrasted: (a) that in which historical price determination is explained without reference to demand (Sraffa), and (b) that in which the determination of quantities in historical time is explained without explicit reference to supply (Keynes). In the neoclassical vision of reality, prices and quantities are simultaneously determined by both demand and supply in logical time. It is then argued that the "post-keynesian" appellation is misleading. What is needed is a truly post-classical approach based on the works of Keynes, Sraffa and Marx.

Special Forum on Recent Interpretations of Keynes and the General Theory: The Post-Keynesian Economics Study Group – After 20 Years

First paragraphThe Post-Keynesian Economics Study Group (or PKSG, as it is usually abbreviated) was founded in 1988 by Philip Arestis and Victoria Chick with financial support from the UK Economic and Social Research Council (ESRC). The purpose of the Study Group is to encourage collaboration among scholars and students of Post-Keynesian economics, defined by the founders broadly »as a theoretical approach that drew upon the work of Keynes, Kalecki, Joan Robinson, Kaldor and Sraffa, and distinguished itself by its insistence that history, social structure and institutional practice be embodied in its theory and reflected in its policy recommendations« (Lee 2007a).The central feature of this approach has been further articulated by Arestis (1996) as the principle of effective demand, which can be approached from the perspectives of various intellectual traditions, including those of Keynes himself (closest to Marshall and the modern Neo-Classicals) and of Kalecki (drawing on Marx), informed by an emphasis on institutions deriving ultimately from Veblen. These traditions cover the contributions of Robinson and Kaldor, and Sraffa’s critique of Neo-Classical economics, although the positive Neo-Ricardian programme is best regarded as a separate school of thought (Arestis et al. 1999).

Teaching & Learning Guide for: The Paradox of Confirmation

. Hempel’s theory of confirmationwas based on a few very simple (and seemingly plausible) assumptions about (instantial)‘inductive-logical support’. However, as Hempel himself was keenly aware, even suchsimple and seemingly plausible assumptions give rise to various puzzles and paradoxes.The two most famous paradoxes of confirmation were discovered by Hempel andGoodman. This article discusses Hempel’s paradox (which is known as ‘the’ paradoxof confirmation, since it was discovered first). However, many of the historicaldevelopments surrounding Hempel’s paradox (also known as the ‘raven paradox’)are also crucial for understanding Goodman’s later (‘grue’) paradox.

ARTHUR LEWIS's CONTRIBUTION TO DEVELOPMENT THINKING AND POLICY

Arthur Lewis's seminal 1954 paper and its emphasis on dualism appeared at a time when neither the work of Keynes and Harrod–Domar nor the later neoclassical production function of Solow seemed relevant for developing countries. As a consequence, his model, rooted in the classical tradition, plus its many extensions, generated an extensive literature at the center of development theory. The approach also encountered increasingly strong criticism, some of the ‘red herring’ variety. Some, spearheaded by neoclassical microeconomists like Rosenzweig, raised serious challenges and focused especially on its labor market assumptions. This paper reviews this landscape and asks what theoretical or policy relevance the Lewis model retains for today's developing countries.

J.M.KEYNES: AN EMPEROR WITHOUT CLOTHES (ONE NON‐ECONOMIST'S VIEW OF ANOTHER)

Central bank policy causes economic dislocation and recession. Keynes's work assumes away much of what is important in economic analysis. As a result, Keynesian conclusions on how to deal with recessions are wrong.

The Real Wage and the Marginal Product of Labor

As I see it, the errors in Keynes's analysis in Chapter Two of the General Theorv were his acceptance of diminishing returns in the short-period relation between output and labor employed and of perfect competition in the product market. These errors, however, are easily corrected and do not alter Keynes's basic and correct ideas -- that employment is determined by aggregate demand, that real wages are determined by aggregate demand given the degree of competition and the level of capital utilization and other determinants of the productivity of labor, and that the supply of labor, at least below full employment, has no effect on either employment or real wages. I would like to reiterate that the formulation we have established here is Ricardian rather than neoclassical. Basically all we have said is that the mark-up represents a deduction from the product of labor and that since the mark-up is certainly not procyclical and productivity probably is procyclical, as the of production is extended, real wages rise. Sraffa (1960, pp. v-vi) has argued that such a use of the term is spurious, since the true application of the term requires attention to be focused on change, while this use of the term, as in Ricardo's discussion of the margin of cultivation, need only be a matter of differences in quality among existing productive facilities rather than changes in scale or in input proportions. We have come a long way from the neoclassical idea of a marginal product of labor, but this should not make either us or Keynes embarrassed about Chapter Two of the General Theory, one of the most interesting and important chapters in the book. Lawlor, Darity, and Horn (1987) noted that Sraffa (1926) had pointed out that the determination of prices and quantities by the interaction of supply and demand necessitates an independence between supply and demand which does not obtain except under very restrictive conditions. Sraffa (1960) extends this argument by showing that scarcity, as in scarce factors of production, is not necessary to determine value and in fact cannot determine value independently of income distribution. Keynes's and Kalecki's work shows that when we take effective demand into account, output is determined solely by demand and distribution by the conditions of competition. Kalecki's and Keynes's work can thus be taken as an Hegelian supersession of classical and neoclassical economics when we realize that workers cannot bargain in terms of a real wage and that output not saleable will soon no longer be produced.

A Dynamic Approach to the Theory of Effective Demand

This paper attempts to resituate the theory of effective demand within a dynamic nonequilibrium context. Existing theories of effective demand, which derive from the works of Keynes and Kalecki, are generally posed in static equilibrium terms. That is to say, they serve to define a given level of output which corresponds to the equilibrium point between aggregate demand and supply. We propose to generalize this analysis in three ways. First, we will extend the analysis to encompass a dynamic (i.e. moving) short run path of output, rather than a merely static level. Second, we will show that this dynamic short run path need not imply an equilibrium analysis, since it can arise from either stochastically sustained cycles or deterministic limit cycles. And third, we will prove that the preceding generalization of the theory of effective demand will allow us to solve a long standing problem in growth theory: namely, the puzzle surrounding the apparently intractable instability of warranted growth.

Why Convention Dominates Pension Fund Trustee Investment Decisionmaking

Pension funds may be one of the few avenues now open for financing new urban infrastructure and development projects. But convention dominates pension fund trustees' investment decisions, so it is difficult to see how the ambitions of advocates of pension fund investment can be squared with trustees' behaviour. The question is: why does convention dominate? Drawing on previously reported interviews and case studies, I propose a framework through which to understand the dominance of convention. In doing so, I identify a set of behavioural traits that structure decisions. This framework is inspired by the contributions of Kahneman and Tversky and their colleagues for understanding the economic psychology of individual decisionmaking. The paper is intended to be a realistic account of the attributes of trustee decisionmaking, recognising the ingrained and systematic nature of the identified habits, rules, and norms. The paper is also inspired by Keynes's work on risk and uncertainty. In combination, I assess the potential for investment innovation by pension fund trustees, noting the importance of analogical reasoning in extending the range of pension funds investments. The paper closes with a comparison of the proposed framework with standard treatments of decisionmaking, including reference to the robustness of psychological models of habit.