Kalecki on money and finance

It is argued that Kalecki had a greater appreciation of the role of the monetary sector than has been generally recognized, and that Kalecki presented ideas which can be seen as now embedded in the structuralist post Keynesian analysis of endogenous money and in the circuitist approach. Six key features of Kalecki's monetary analysis are identified. The paper outlines Kalecki's dismissal of the ‘Pigou effect’ and the ‘Keynes effect’, and then discussion the relationship between the ‘principle of increasing risk’ and the nature of the supply of credit. It discusses interest determination in Kalecki's writings and the manner in which he distinguished different types of money.     

Rejoinder to Rosser,O'Donnell,and Carrión Álvarez and Ehnts on their criticisms of my ergodic/nonergodic formulation of Keynes's concept of an actuarial certain future vs. an uncertain future

This article provides my responses to recent criticisms of my argument associating Keynes’s concept of uncertainty with Keynes’s explicit statement that in our world of experience applying the “probability calculus” to historic data does not produce actuarial certain knowledge of future economic outcomes. Furthermore I have tried to explain, using Keynes’ own written statements how Keynes’s General Theory differs from old classical theory, new classical theory, Samuelson’s Keynesian Theory, and New Keynesian Theory.     

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.     

Insights on endogenous money and the liquidity preference theory of interest

It is argued that the debate between “structuralist” and “horizontalist” has long been obscured because of inadequate treatment, in both approaches, of the credit-money supply and of the total money supply. As a result, endogenous money models still have serious limitations today. On the one hand, the bank loan markup and the loan interest rate are exogenous in the horizontalist model, which supposes that they do not depend on the money/liquidity market conditions (as if bank loans did not compete with the existing liquidity). On the other hand, although interest rates are endogenous in the structuralist model, they result from inappropriate treatment of the loan supply and money/liquidity supply. This article aims to remove these shortcomings. It offers a theoretical framework and formal modeling where the creditworthy demand for loans determines the bank loan supply, given the central bank refinancing interest rate, while the total supply and demand for liquidity-money determines the markup and the market rate of interest in accordance with Keynes’s liquidity preference theory. In this framework, the post Keynesian theory of endogenous money and Keynes’s “verticalist” view prove to be analytically complementary.     

Institutionalism and the “Common Man” Through the Lens of Philip Klein: Business Cycles,the Public Sector,and Keynes’s Economics

This article reviews and assesses Philip Klein’s work on business cycles and macroeconomics, the public sector, and the economics of John Maynard Keynes. The article makes several findings. First, Klein built on the pioneering efforts of Wesley Mitchell to advance the development of cycle indicators and to outline an eclectic theory of cycles that remains useful for synthesizing a broad literature. Second, Klein’s essays on macroeconomics contain enduring discussions of the malleability of the “natural” rate of unemployment and the value of a behavioral approach to expectations. Third, he refocused the institutionalist attention on the public sector by introducing “higher efficiency” and other concepts to help explain how government policy plays a role in economic life. Fourth, Klein emphasized the role of fiscal policy in moderating business cycles. Fifth, his work points in the direction of today’s post-Keynesian institutionalism, both by stressing that Keynes was “profoundly institutionalist” in his approach and by arguing that conjoining Keynes and institutionalism would provide a stronger foundation for macroeconomic theory and policy.     

"The Reality of the Present and the Challenge of the Future": J. Fagg Foster for the Twenty-First Century

This paper revisits J. Fagg Foster’s early assessment of the relevance of John Maynard Keynes’s theory of institutional economics. In his view, neither institutionalists nor most of Keynes’s followers really recognized the importance of Keynes’s theoretical insights. I examine Foster’s views on economic theory, with a particular focus on monetary theory. I apply Foster’s approach to what is now called modern money theory, an approach developed by heterodox economists working in the institutionalist and post-Keynesian traditions. I argue that this approach is consistent with Foster’s, and it offers a way forward to policy formation for the twenty-first century.     

Three macroeconomic syntheses of vintage 1937: Hicks,Haberler, and Lundberg

Abstract

The 1920s and 1930s were years of intensive debate about economic dynamics and stabilisation policies. There was a large variety of explanations of cycles and depressions, and Keynes’ General Theory of Employment, Interest and Money (1936) was pitched against them. In 1937, followed three different attempts to provide synthetic expositions of macroeconomic theory that would deal with the Keynesian challenge: Hicks’ Mr. Keynes and the “Classics”, Haberler's Prosperity and Depression, and Lundberg's Studies in the Theory of Economic Expansion. This paper compares those 1937 syntheses and contrasts them with the “Neoclassical Synthesis” and the current “New Neoclassical Synthesis”.     

Keynes’ Preface to the German Edition of the General Theory: Nazi Sympathies or Methodological Empathies?

In the (1936) preface to the German edition of The General Theory of Employment, Interest and Money, Keynes contrasts his methodology with that of Classical laissez-faire economics. He also compares and contrasts his methodology with German economics, which members of the German Historical School had heavily influenced. Unfortunately, some view Keynes as arguing in this Preface that his theory could more deductively apply to fascism than to laissez-faire economies. This would suggest an endorsement of Nazism. Of course, any support offered for Nazism should be condemned. However, instead of displaying Nazi sympathies, this paper argues that the Preface more likely supports the widespread methodological rejection in German economics of deducing laissez-faire outcomes from Classical postulates. Furthermore, Keynes criticizes the more inductive approach of many German economists, and states that he provides them with the theoretical framework which they could deductively apply to their totalitarian economy. Keynes should be read as arguing that his theoretical framework would prove more applicable to a totalitarian system than would a theory based on Classical laissez-faire economics. Comments in the Preface which seem to some to support Nazism should be taken, then, as support for the applicability of his theory to such a system. Keynes’ methodological arguments in the prefaces to the other editions, which reflect his overall methodological approach in the General Theory, his familiarity with German economics, his support for liberal economic and political institutions, and his anti-Nazism, all support this alternative interpretation. An earlier version of this paper was presented at the Midwest Economics Association Meetings in Chicago on March 16, 2008.     

Vicarelli’s Keynes (and today’s international disorder)

The article speculates about the legacy of Fausto Vicarelli’s interpretation of John Maynard Keynes’s work in the times of a major global crisis. In particular, it puts an emphasis on those aspects of Keynes’s “method” that Vicarelli rightly considered as revolutionary in his Keynes, of 1977, as well as in other writings. The article then turns to Vicarelli’s reconstruction of Keynes’s early work in international economics (Indian Currency and Finance, Economic Consequences of the Peace) and reflects upon the continuing relevance of the philosophy inspiring Keynes’s plans of global reform in the Forties, also in the light of Vicarelli’s (Keynes-inspired) vision of the problem of policy space at the international level.     

Engagement with the Mainstream in the Future of Post Keynesian Economics

This paper examines the reasons for the difficulties Post Keynesian economics has had in supplanting mainstream neoclassical theory and for its resulting marginalization. Three explanations are given: intellectual, sociological and political, where the latter two are largely responsible for the current relationship of Post Keynesian economics to the mainstream. The paper also reviews various strategies for improving the future of Post Keynesian economics, including a focus on methodological issues by maintaining an ‘open systems’ approach; a strategy of ‘embattled survival’; the development of a positive alternative to mainstream economics; a strategy of ‘constructive engagement’ with the mainstream; and a dialogue with policymakers. While the global financial crisis has increased the potential for constructive engagement with the mainstream, significant barriers remain to the effectiveness of this approach. The crisis has, however, enhanced the possibility of engaging directly with policymakers and gaining a greater role in management education.     

Hayek and Keynes: From a common critique of economic method to different theories of expectations

The methodological positions of Hayek and Keynes contain striking similarities. Both authors opposed empiricist approaches to economics that assign priority to mere observation as the source of knowledge. Both emphasised intentionality, motivation and human agency. Notwithstanding this common ground, they had different conceptions of how beliefs are formed and had different explanations of thought and action in economics. Hayek grounded his explanation on an evolutionary theory of the mind, i.e. on psychological premises, whereas Keynes based his view of belief formation on probable reasoning, where probability is a logical concept. Starting from psychological premises Hayek maintained that individuals act rationally only by following rules. As a consequence, he considered conventional expectations to be the primary guide for agents in economic life. Keynes agreed that conventional expectations actually guide economic behaviour, but he maintained that they are justified only in situations of total ignorance. In conditions of limited knowledge, agents can base their action on reasonable expectations, independently of conventions. Moreover, agents?particularly those institutions responsible for economic policy?ought to shun conventional behaviour in order to counteract its negative social consequences. We argue that Keynes's theory of expectations is well grounded upon his theory of logical probability. Hence his advocacy of discretionary policy is rationally justified.     

Keynesian Dominance in Crisis Therapy

The 1930s’ debate about the short-run Keynesian response to crisis and Hayek's critique of its long-run consequences has significant contemporary parallels. This article examines, from a historical perspective, the Keynes–Hayek debate by considering the development of Keynesian economic theory, its ascension and application during financially sound times, the Hayekian critique, the monetary counter-revolution, and the Keynesian renaissance in the wake of the global financial crisis. It is shown that Keynesian fiscal measures prevail over the Hayekian approach in the midst of a crisis leading to rising inflation and public debt, depressed long-run growth and a new crisis.     

Friedman and Keynes: divergences and convergences *

Milton Friedman claims to have succeeded the Keynesian revolution with a counter-revolution which, incorporating certain features of Keynes's thought, triumphed at the end of the 1960s. This paper presents a general assessment of the relationship between these thinkers, in the domain of politics, methodology and economics, the emphasis being put on Friedman's reading of Keynes. In many places, Friedman stresses the convergences between his vision and Keynes's, as against the latter's Walrasian disciples. However, despite certain points of agreement at the methodological level, the two authors are radically opposed in terms of political vision and economic analysis.     

回到凯恩斯还是回到熊彼特？——基于主流宏观经济学发展历程的理论反思

大萧条爆发后,嘬终占据主流地位的是系统提出摆脱大萧条方案的凯恩斯主义经济学。20世纪70年代以后,凯恩斯主义因无法解释“滞胀”现象而日渐式微。20世纪80年代以来,新古典主义和新凯恩斯主义共同占据主流地位,它们都要对2008年全球金融危机的爆发负责。危机爆发之后,“回到凯恩斯”的声音日渐高涨。但是凯恩斯主义宏观政策只能防止经济深度下滑,并不能带来经济长期繁荣,也不能帮助人们理解市场经济运行的本质特征。在后危机时代,我们需要“回到熊彼特”,以熊彼特的创新理论为基本框架来理解经济周期和金融危机,从而找到走出危机的治本之道。     

The biological hypothesis in cliometrics of growth: a methodological critique of Fogel (post 1982) and Ashraf & Galor (2013)

The resort to biological “analogies”, “metaphors” and “concepts” is an important aspect of the history of the relationships between economics and biology and has long been greatly controversial. This controversy continues today in the most recent work of three cliometricians, i.e. Fogel (post 1982) and Ashraf and Galor (2013). We focus on the theories of historical growth relying on biological explanations which have been formulated by these economists, from the specific angle of biological reductionism. We propose a methodological critique of their use of biological variables as determinants of the historical dynamics of economic growth. Based upon the transposition to the field of economics of Ernst Mayr’s distinction between functional and evolutionary biology and his definitions of reductionism, we argue that despite some similarities, the questions raised by Fogel’s and Ashraf & Galor’s theories are of distinct nature. Nonetheless, we stress the need for a careful examination of the biological mechanisms supporting these researches.     

Keynes’ Preface to the German Edition of the General Theory: Nazi Sympathies or Methodological Empathies?

In the (1936) preface to the German edition of The General Theory of Employment, Interest and Money, Keynes contrasts his methodology with that of Classical laissez-faire economics. He also compares and contrasts his methodology with German economics, which members of the German Historical School had heavily influenced. Unfortunately, some view Keynes as arguing in this Preface that his theory could more deductively apply to fascism than to laissez-faire economies. This would suggest an endorsement of Nazism. Of course, any support offered for Nazism should be condemned. However, instead of displaying Nazi sympathies, this paper argues that the Preface more likely supports the widespread methodological rejection in German economics of deducing laissez-faire outcomes from Classical postulates. Furthermore, Keynes criticizes the more inductive approach of many German economists, and states that he provides them with the theoretical framework which they could deductively apply to their totalitarian economy. Keynes should be read as arguing that his theoretical framework would prove more applicable to a totalitarian system than would a theory based on Classical laissez-faire economics. Comments in the Preface which seem to some to support Nazism should be taken, then, as support for the applicability of his theory to such a system. Keynes’ methodological arguments in the prefaces to the other editions, which reflect his overall methodological approach in the General Theory, his familiarity with German economics, his support for liberal economic and political institutions, and his anti-Nazism, all support this alternative interpretation. An earlier version of this paper was presented at the Midwest Economics Association Meetings in Chicago on March 16, 2008.     

Gordon Tullock and the Virginia School of Law and Economics

In 1999 Gordon Tullock became Professor at the George Mason University Law School. Tullock’s arrival at George Mason brought the economics department and the law school close together. The work that resulted during those years consolidated the methodological foundations for a different way of thinking about the economic analysis of law—the “functional” approach to law and economics. The functional law and economics approach espoused by the Virginia School was not attacking any of the results of the Chicago School or the Yale School, but rather proposing a methodological shift. This paper presents some of the results developed by this school and illustrates Tullock’s controversial positions on trials and on the common law system, through anecdotes, Tullock’s own work and related scholarly contributions.     

Revolution and counter-revolution: two views of unemployment

There is a view in economics that Keynes did not have a microeconomictheory underpinning his explanation of macroeconomics. For example,Friedman (1970) even goes so far as to maintain that pricesare arbitrary in Keyne's approach to economics. The conclusionwhich follows from this critique of Keynes is that Keynesianeconomics cannot explain the occurrence of unemployment in amarket economy except by invoking ad hoc assumptions. It isargued in this paper that the above critique is based on a misunderstandingof the focus of the Keynesian explanation of unemployment. Thefocus in Keynes is not choice, but exclusion from choice. Inconventional microeconomics, the concept of choice is not consideredproblematic. The observation that a particular action is takenis confused with the view that the action is voluntarily chosen.The Keynesian explanation entails an exploration of what theconcept of voluntary choice means.     

Financial constraints and unemployment equilibrium

The aim of this paper is to show that a robust determination of unemployment equilibria can be based on the integration of credit rationing into a general equilibrium model. We first review some of the Keynesian macroeconomic models. We show that the problems bequeathed by Keynes’ legacy are only partially solved by the strand of the new Keynesian economics based on market imperfections and endogenous rigidities. In order to overcome these problems we refer to credit rationing. In particular, we build a simple general equilibrium model in which prices are–in principle–perfectly flexible and credit rationing implies unemployment equilibria.