Theorizing About Post-Keynesian Economics in Australasa

There was much in common in the development of post-Keynesian economics in Australia and New Zealand, but there were also many differences. Both countries shared a common heritage in higher education. In the first twenty-five years after World War II, both countries adopted broadly Keynesian policies and experienced very low levels of unemployment. Increasingly over these years more theorizing about macroeconomic policy had what now would be called a post-Keynesian content, but this label was not used till after the event. In both countries, apart from one important factor, the experience of actual monetary policy and theorizing about it were similar. Keynesian ideas were more rapidly adopted in Australia than in many other countries. Not surprisingly for a couple of decades after 1936, analysis of policy and its application was Keynesian rather than post-Keynesian, with fiscal policy playing the major role. The conduct of both monetary and fiscal policy depends on the theory of inflation. This chapter examines post-Keynesian economics in Australasia, focusing on aggregate demand, economic growth, and income distribution policy.

A Modern Kaleckian-Keynesian Framework for Economic Theory and Policy

Macroeconomic policies come from the “vision” of the ways in which an economy works. A “vision” of the economy where unemployment is a frequent occurrence gives rise to quite different policies from a “vision” of the economy in which there is little room for unemployment of labor, as, for example, in the New Classical macroeconomics. The macroeconomic vision that underlies the policy agenda of this chapter is described as Kaleckian-Keynesian, as it draws on the works and ideas of Michal Kalecki and John Maynard Keynes and others that approach the matter in a similar fashion. This chapter explores a modern Kaleckian-Keynesian framework for economic theory and policy. It first discusses fiscal policy, the main instrument of macroeconomic policy, before turning to monetary policy as well as financial policy, inflation, and policies that relate to product markets and labor markets.

Methodology and Post-Keynesian Economics

Post-Keynesian economics can be defined by its particular vision of reality, from which follows its theory of knowledge and its methodology. The chapter develops this argument in general and then seeks to specify how we might classify the particular ontology, epistemology, and methodology of post-Keynesian economics. This involves exploration of such concepts as open systems and pluralism. The chapter explores how these concepts have been used differently in discussions about post-Keynesian economics, and indeed about heterodox economics more generally. In the process, therefore, we consider both the viability of demarcating schools of thought in this way and the advisability or otherwise of doing so. As well as engaging with current debate in these issues, the discussion is tied back to Keynes’s ideas on philosophy and methodology. It is argued that an explicit methodological focus is still necessary to clarify issues of methodological approach within post-Keynesian economics, particularly with respect to issues of the strategy for communication and persuasion.

Two Post-Keynesian Approaches to Uncertainty and Irreducible Uncertainty

Uncertainty, especially irreducible uncertainty, is an essential component of Keynes’s General Theory and of post-Keynesian economics. Within post-Keynesianism, however, two contrasting understandings of uncertainty and its cognate concepts have emerged over the last few decades. These are the Human Abilities/Characteristics approach and the Ergodic/Nonergodic approach, which are often portrayed as epistemological uncertainty and ontological uncertainty respectively. According to the former, uncertainty is ultimately grounded on certain inescapable limitations in human knowledge and abilities to acquire knowledge, regardless of the ontology of the domain being investigated. According to the latter, uncertainty is ultimately grounded on the ontology of the domain being investigated, regardless of any limitations in human knowledge or ability. This chapter provides a detailed dissection and explanation of the core constituents of the two approaches, and concludes by summarizing their differences and posing some questions for reflection.

Post-Keynesian Perspectives on Some Philosophical Dimensions of Keynes’s Economic Thinking

This chapter first describes philosophical influences on the young Keynes and then explores how interest in philosophical dimensions of his economic thought has grown since coming to life in the 1970s. The central themes in this burgeoning literature derive from Keynes’s analysis of how it is that ineradicable uncertainty sets the terms for decision-making processes and reasonable action. This raises interesting philosophical questions about the nature of rationality (and economic rationality in particular), of probability judgments and uncertainty, of skepticism, and of conventional behavior, as well as issues concerning the extent of continuity in Keynes’s thinking. The chapter sketches some paths discussion has taken, admires some routes, notes a degree of proliferation, and attempts to map a few misleading trails.

Post-Keynesian Economics, Critical Realism, and Social Ontology

Critical realism in economics is centrally concerned with demonstrating how an explicit focus on social ontology can help identify the nature of contemporary mainstream economics and promote the further development of more relevant alternatives. In examining the relationship between critical realism and post-Keynesian economics two issues are considered. First, this chapter addresses the question of how a project that is primarily concerned with social ontology can productively inform, or offer directionality to, a more substantive program such as that of post-Keynesian economics. Second, the chapter considers how post-Keynesian economics can provide certain important resources for those seeking to stake out a distinctive position in social ontology. The argument is that the two projects can be mutually supportive. Critical realism can clarify what post-Keynesianism is and how it relates to other projects. Post-Keynesian economics, meanwhile, through its accounts of central social categories, offers material with which to work to those critical realists seeking to focus on issues in social ontology at a less abstract level than has been typical in the project.

Post-Keynesian Economics, Rationality, and Conventions

The role of conventions has been an area of increasing interest to writers in the post-Keynesian tradition, particularly over the last thirty years. This has arisen from the reexamination of John Maynard Keynes’s notion of convention in the context of radical uncertainty along with the status of rationality in the face of uncertainty. This chapter discusses some of the principal tenets of Henri Poincaré’s analysis of conventions and relates them to the post-Keynesian methodological agenda, more specifically to provide a Poincaréan defense of the role of conventions in rational decision-making. It argues that this provides an innovative and more adequate philosophical defense of nonergodicity in economic theory, which has become a central axiom of post-Keynesian economics. The chapter first provides an overview of the post-Keynesian literature on uncertainty and conventions arising from Keynes’s employment of the concept. It then outlines the emergence of conventions and conventionalism in philosophy, examines Poincaré’s conventionalism and its relationship with rationality, and considers the implications of Poincaré’s conventionalism for post-Keynesian economics.

On the Microfoundations of Macroeconomics

In a review of Asset Accumulation and Economic Activity by James Tobin, Hyman Minsky outlined three types of macroeconomic approaches after John Maynard Keynes: the neoclassical synthesis, the New Classical approach, and fundamentalist Keynesian scholarship. Each of the three streams of thought identified by Minsky had trouble finding acceptance. Regarding the fundamentalist Keynesians, Minsky’s third group, this chapter suggests why mainstream economists tended to ignore them, attributing this neglect to a form of dogmatism. The bulk of this chapter, though, focuses on criticism leveled against the two other approaches quite directly, namely, that they had inadequate microfoundations. Unless otherwise stated, the microfoundations referred to in this chapter concern the aggregate manifestations of the general equilibrium (of the Arrow-Debreu type) of maximizing individual agents. Also discussed are the arbitrariness of aggregate demand and its implications, the Sonnenschein-Mantel-Debreu theory, and ontological reduction and explanatory reduction.

A Post-Keynesian Perspective on the Rise of Central Bank Independence

Central bank independence (CBI) refers to the relation between the central bank and the state, the legislature and executive. In practice, central banks typically engage in a wide range of activities related to the currency sphere and the financial system. The mainstream literature popularizing CBI features a “narrow central bank” approach that concentrates on central banks’ monetary policy functions only, ignoring important interdependencies between monetary policy on the one hand, and central banks’ historical role as government’s banker (as one link to fiscal policy) and their role in safeguarding the financial system’s stability on the other. This chapter investigates the rise in CBI as an apparent success story in modern monetary economics. The worldwide rise in CBI is partly due to the advent of Economic and Monetary Union (EMU) in Europe. This chapter also discusses the time-inconsistency argument for CBI, post-Keynesian criticisms of CBI, and whether John Maynard Keynes’s model of CBI strikes a sound balance between democracy and efficiency.

The Neoclassical Sink and the Heterodox Spiral

The global financial crisis, when it first emerged in 2007–2008, appeared to be a silver bullet aimed at the heart of neoliberal macroeconomics and efficient-markets financial theory. Several years later, the United States and many Eurozone nations are loaded with cascading debt flows that apparently exceed repayment capacity. Why has the neoliberal approach to financial governance and macroeconomic policy not been repudiated by an economics mainstream whose collective reputation is clearly at stake amid the warning signs of a looming global depression? And what does this turn of events mean for the future of heterodox economic theory? This chapter explores why the twin global crisis has not transformed economics. It first differentiates among three perspectives that shape much thinking in economics: neoliberal economics, neoclassical economics, and heterodox economics. It then looks at the subprime crisis and argues that the subprime crisis and financial market meltdown clearly pointed to failure of government regulation.