Post-Keynesian economics

• 1. Introduction

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  Post-Keynesian economics is a school of economic thought built on The General Theory of John Maynard Keynes. Historian Robert Skidelsky argues it has stayed closest to the spirit of Keynes's original work. Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Weintraub, Paul Davidson, Piero Sraffa, Jan Kregel, Basil J Moore, Marc Lavoie, and Tracy Mott all contributed later. It is a heterodox approach to economics, built on the idea that markets do not settle naturally into equilibrium. Why would thinkers united by one book split into rival camps? And why do some of the school's own founders insist it has drifted from Keynes himself?

• 2. Naming a Rebellion

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  In 1975, economists Alfred Eichner and Jan Kregel gave this school of thought its name for the first time. Three years later, in 1978, the Journal of Post Keynesian Economics gave the label a permanent academic home. Before that, going back to 1936, the year Keynes published his General Theory, "post-Keynesian" had simply meant economics written after that date.

  Two other schools claim the Keynesian label too. Neo-Keynesian economics was orthodox through the 1950s and 60s, while new Keynesian economics, blended with various neoclassical strands, has dominated mainstream macroeconomics since the 1980s. Post-Keynesians argue both seriously misrepresent what Keynes actually wrote. They see their own project as an attempt to rebuild economic theory around his original ideas.

  Even inside the school, agreement has never been total. Joan Robinson, one of its own early voices, sought to distance herself from Keynes almost from the start. Much of today's post-Keynesian thought cannot be traced back to Keynes at all. Some post-Keynesians pushed further left than Keynes himself, placing greater weight on worker-friendly policies and redistribution. Robinson, Paul Davidson, and Hyman Minsky went further still, stressing the practical differences between types of investment where Keynes had offered a more abstract treatment.

  That argument over method rests on a single shared idea the whole school still defends: the principle of effective demand.

• 3. The Case for Demand

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  In 2009, Marc Lavoie identified effective demand and historical and dynamic time as the two defining features of post-Keynesian economics. Effective demand holds that demand shapes the economy in the long run just as much as the short run. A competitive market has no natural or automatic pull toward full employment, post-Keynesians argue.

  New Keynesian economists, working inside the neoclassical tradition, blame that failure on rigid or sticky prices and wages. Post-Keynesians reject that explanation entirely. They also reject the IS-LM model built by John Hicks, a model that remains highly influential inside neo-Keynesian economics. Their reason: endogenous bank lending matters more for interest rates than the money supply set by central banks.

  Lavoie's list did not stop at those two features. He named five auxiliary features too. These covered the possible negative impact of flexible prices, the monetary production of the economy, and fundamental uncertainty. He added a call for relevant, contemporary microeconomics and a pluralism of theories and methods.

  Economists inside the school built very different arguments on top of that shared foundation, starting with a decades-long fight over the nature of capital itself.

• 4. Competing Strands

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  Joan Robinson regarded Michał Kalecki's theory of effective demand as superior to Keynes's own version. Kalecki built his theory on a class division between workers and capitalists, combined with imperfect competition.

  Robinson also led the charge against aggregate production functions built on the assumption of homogeneous capital, a fight known as the Cambridge capital controversy. She is said to have won the argument without winning the wider battle.

  Piero Sraffa's writings carried real weight in that dispute. Yet Sraffa and his neo-Ricardian followers actually drew more inspiration from David Ricardo than from Keynes.

  Nicholas Kaldor took the theory in another direction. Much of his work rested on increasing returns to scale, path dependence, and the key differences between primary and industrial sectors.

  Every one of these strands kept evolving as newer economists picked up the threads, especially when it came to explaining where money itself originates.

• 5. Money's New Blueprint

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  Paul Davidson stayed closest to Keynes's own approach, putting time and uncertainty at the heart of his theory. From that starting point flows his account of money and of a monetary economy.

  Monetary circuit theory took shape separately in continental Europe. It treats money's role as a means of payment as its single most distinctive feature. Stock-flow consistent models offer another tool, refined across later generations of scholars, that track a country's receivables, liabilities, and cash flows within one consistent framework.

  Basil J Moore pioneered a different approach called horizontalism. In his account, private bank reserves are not managed by central banks at all. Instead, reserves are supplied on demand at the bank rate the central bank sets. That flips the textbook money multiplier on its head: loans create deposits, and deposits in turn create reserves, rather than the other way around.

  Moore laid out the theory in his 1988 book, Horizontalists and Verticalists: The Macroeconomics of Credit Money, published by Cambridge University Press. Writing in the Review of Keynesian Economics in 2013, Ulrich Bindseil of the European Central Bank said the book "has impressively stood the test of time." He added that central bankers "have by now largely buried 'Verticalism', at least when it comes to monetary policy implementation."

  Modern Monetary Theory grew independently out of the work of Warren Mosler. It treats the currency itself as a public monopoly, using that as the micro-level foundation for macroeconomics. The theory extends effective demand by arguing that coercive taxation is what drives a currency's value, since tax itself functions as a kind of credit. From that, the price level becomes a function of the prices the state itself pays.

  Later MMT economists built on Wynne Godley's macroeconomic modelling. They also folded in some of Hyman Minsky's ideas about the labour market, along with chartalism and functional finance.

  These monetary strands fed into a wider set of claims about what post-Keynesian economics could explain beyond employment alone.

• 6. Extending the Theory

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  Post-Keynesian economists were among the first to argue that money supply merely responds to demand for bank credit. That meant a central bank could never really control the total quantity of money in the economy. It could only manage the interest rate, and it did that indirectly, by managing the quantity of reserves in the banking system.

  That once-heterodox view has since become mainstream. Monetary policy today targets the interest rate as its main instrument, rather than trying to precisely control the quantity of money in circulation.

  The school's reach extends well past employment theory. Post-Keynesians have applied the same emphasis on money demand to income distribution, economic growth, trade, and development. Neoclassical economics, by contrast, explains those same outcomes through technology, preferences, and the initial endowment of resources.

  Hyman Minsky, working in the field of finance, built a theory of financial crisis around the idea of financial fragility. That theory has drawn renewed attention in recent years.

  More recent post-Keynesian research has tried to give capacity underutilization its own micro-foundations, framing it as a coordination failure. That framing is used to justify government intervention in the form of aggregate demand stimulus.

  That argument for government intervention now gets made inside a network of journals and university departments stretching across several continents.

• 7. A Worldwide Network

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  The Review of Keynesian Economics, known as ROKE, publishes much of the field's current research today. So does the Journal of Post Keynesian Economics, founded by Sidney Weintraub and Paul Davidson. Three more carry the field's work: the Cambridge Journal of Economics, the Review of Political Economy, and the Journal of Economic Issues.

  In the United Kingdom, the Post-Keynesian Economics Society traces back to 1988, when Philip Arestis and Victoria Chick founded it as the Post-Keynesian Economics Study Group. It took its current name in 2018.

  Post-Keynesian economists now teach at SOAS University of London, the University of Greenwich, and the University of Leeds. They can also be found at Kingston University, King's College London's International Political Economy programme, and Goldsmiths, University of London. Further afield are the University of the West of England in Bristol, the University of Hertfordshire, and Cambridge University's Land Economy faculty. Birmingham City University, University College London's Institute for Innovation and Public Purpose, the Open University, and the University of Winchester round out the list.

  A UK-based consultancy called Cambridge Econometrics built on these post-Keynesian foundations to develop a computer model named E3ME, covering energy, environment, and the economy. The European Commission uses it to weigh the medium and long-term effects of its environmental and economic policies.

  In the United States, post-Keynesian economics has a home at The New School in New York City and the University of Massachusetts Amherst. It also has one at the University of Utah in Salt Lake City, Bucknell University in Pennsylvania, and Denison University in Ohio. The Levy Economics Institute at Bard College, the University of Missouri-Kansas City, and the University of Denver all carry the tradition forward. So do Colorado State University, the University of Massachusetts Boston, and John Jay College of Criminal Justice at the City University of New York.

  The Netherlands has its cluster at Erasmus University Rotterdam, the International Institute of Social Studies in The Hague, Maastricht University, and the University of Groningen. France's contribution comes from Sorbonne Paris North University, while Canada's post-Keynesians work out of the University of Ottawa and Laurentian University.

  Post-Keynesianism runs strong in Germany at the Berlin School of Economics and Law, in its International Economics and Political Economy of European Integration master's programmes. Many German post-Keynesians organize through the Forum Macroeconomics and Macroeconomic Policies. In Australia, the University of Newcastle in New South Wales houses the Centre of Full Employment and Equity, a post-Keynesian think-tank.

  Behind every one of these departments and journals stands a roster of economists who carried the tradition from Keynes's own generation into the next two.

• 8. Two Generations

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  James Crotty, Geoff Harcourt, Donald J. Harris, and Michael Hudson all sit among the school's first and second generations of economists. So do Frederic S. Lee, Augusto Graziani, Steve Keen, and Paolo Leon. Abba P. Lerner, Edward J. Nell, Luigi Pasinetti, and George Shackle round out an even longer list. Anthony Thirlwall, Fernando Vianello, William Vickrey, L. Randall Wray, and Dimitri B. Papadimitriou carried the tradition further still.

  That full roster represents what the school itself calls its first and second generations after Keynes. It is a lineage that keeps adding new names to a theory nobody has finished writing yet.