nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2014‒01‒10
three papers chosen by
Karl Petrick
Western New England University

  1. The Road to Market Serfdom: Why Economics is Not a Science and How to Fix it. By Freeman, Alan
  2. Culture, Labour, and Resources: Principles of a Practical Alternative Growth Path By Freeman, Alan
  3. Estimation of Keynesian Exchange Rate Model of Pakistan by Considering Critical Events and Multiple Cointegrating Vectors By Hina, Hafsa; Qayyum, Abdul

  1. By: Freeman, Alan
    Abstract: This paper was presented to the May 2013 conference of the Postglobalization Initiative in Moscow, and deals with the function of economics in the modern world order. It seeks to explain why, as a profession (notwithstanding individual exceptions) economics failed to predict the crisis that opened in 2007; why it then failed to foresee its length and depth; and why it proposes no solutions that could bring it to an end. The paper challenges economics’ most fundamental claim, that it conducts itself as a science, arguing that it instead behaves as a religious system for making and justifying political decisions whose core belief is market perfection: the notion that the combination of private property in production with universal commodification is not only optimal, but cannot fail. The paper proposes a radical new conception of the ethical duty of economists as resisting untruth, which it can do by conducting itself as a pluralist science. To this end, the paper introduces a distinction between two functions of knowledge: its exoteric function through which society arranges to control nature, and its esoteric function which organises, within a rational structure, systems of law, ethics, morality, and their relations to each other. In science, the exoteric predominates over the esoteric. In religion, the reverse is the case. This explains the real function of economics, which is a disguised normative system rooted in the primary principle of market perfection. Its prescriptions are derived not by the normal scientific method of testing a variety of theories against the evidence, but by the elevation of this supposition into an unchallengeable dogma. It operates as a monotheoretic body of knowledge in which, at any given time and facing any given problem, only one unique answer is offered, denying the users of economics the basic democratic and scientific right to choose between a variety of answers on the basis of their own independent assessment of both the evidence and the presuppositions of the theories from which the prospective answers are deduced. The primary mechanism of its religious function lie therefore in its methods of theoretical selection: it permits the promulgation and indeed, development, only of those theories which yield predictions consistent with the dogma of market perfection. It is constructed to suppress any body of theory which leads to conclusions inconsistent with the assumption of market perfection, most notably those, such as the theories of Marx and Keynes, which demonstrate that the market system is self-contradictory – that is to say, that it acts so as to undermine the basis for its own existence. The more likely it is that a given theory may lead to such conclusions, the more thoroughly it is suppressed. In consequence, those theories that escape the suppressive net of economics are precisely those in which the present social order is presented as not merely optimal but natural, inevitable and eternal. Interference with this market then becomes a crime against nature. All private benefits of the property-owners become the result of natural forces: they are rich because nature intended them to be. Take their riches from them, and things can only get worse. Poverty, destitution, famine: these are sad but inevitable consequences of nature. Any policy designed to offset or overcome them is misguided. Nature, in a word, has been enthroned as a God, by excluding humans from Nature. I employ the term market serfdom to characterise such a system, because it removes choice from the field. Human agency is itself designated a crime against nature. Hayek and his followers, the paper, have erred in making an issue of the claim that ‘serfdom’ comes from interfering with the market: Actually they propose that they only course open to humanity is to submit to the market. His is the freedom of the slave who accepts his destiny. We have no choice but what the market ordains. Economics, as we now know it, is the theoretically perfected manifestation of this doctrine, just as late mediaeval Catholicism was the perfected manifestation of the doctrine of submission to the established aristocratic and monarchic order. The paper then analyzes the two principal mechanisms by which the profession of economics has arrived at this point: selection for conformity and institutional delegitimation, and briefly outlines how ‘assertive pluralism’ could, if applied systematically, restore the study of political economy to the status of a science. Slides, and a video of the presentation and discussion, will be made available through the link to this paper at an
    Keywords: Value, Price, Money, Labour, Marx, MELT, Okishio, TSSI, temporalism, rate of profit
    JEL: B1 B4 B5
    Date: 2013–05–01
  2. By: Freeman, Alan
    Abstract: This paper was due to be presented to the 2013 conference of the World Association for Political Economy, in Florianopolis, Brasil. In the event, the author was unable to attend. The paper summarises the main conclusions of ten years of research into the Creative Industries in London and the UK, culminating in a report for the English-based research foundation NESTA. The author was responsible for this research. I try to draw out the policy conclusions for economic and human development addressing three fundamental structural problems: (1) In what technologies should a modernising, developmental strategy focus? (2) What is the relation between economic and human development and how can the latter be assured by the course of the first? (3) What technological and social choices will make it possible both to expand economic activity and to reduce the consumption of resources, with all the attendant risks that beset modern development strategies including dependency on resource exploitation and the sustainability of the chosen growth path With few notable exceptions, social theory has failed to grasp the significance of the Creative Industries, consigning to a backwater a development which offers answers to the economic crisis, the social problems of a deeply unequal world, and to resource depletion and rape. Culture has become a ‘non-economic’ opposite to political economy; neither economists nor cultural theorists grasp the theoretical instruments needed to understand that culture is in fact the most economically important human activity, once the economy is grasped, in a rounded way, to include the whole of social reproduction. The principal obstacle to theoretical and practical advance is the inheritance, both material and spiritual, of a fading epoch dominated by mechanisation. The primary course of present-day accumulation is to reduce labour to a simple mechanical form, and then replace humans by machines. The primary drive of culture is the opposite. The creative industries show that the present course of economic development is bumping up against absolute limits. This is because the resource that they require to grow is non-mechanical labour, which cannot be replaced by machinery. The normal mechanism of accumulation – the acquisition of material and hence excludable ‘things’ no longer works. They also illustrate a fundamental limit in the structure of demand. The source of demand for cultural products is a mix of the luxury consumption of the capitalists, and the ‘moral’ or socially-defined component of the wage, both of which are primarily non-material. As the world passes material satiety and lurches into material overconsumption, even as it consigns three quarters of its population to absolute deprivation, new material sources of demand are impossible to find, and new private demand is increasingly confined to the cultural and spiritual domain, where it takes the morbid forms of lust to possess, dominate and outdo. These trends between them offer a sustainable path forward for humanity in the shape of growth in demand for labour services, which would be, in Mark Swilling’s terminology, ‘resource-decoupled’, decreasing the consumption of resources whilst growing the use and emancipatory nature of human labour. The paper will address the fundamental obstacles to realising this , including those created by a mode of production so far unable to transition from investing in things to invest in humans. This poses an especial challenge for policy, since the growth of the creative industry sector manifests itself in a new and vibrant commercial sector, yet depends on long-term investment in both in the artistic and cultural formation of performers and producers, and in the general cultural level of society, including careful attention to the changed role of urban spaces and the interaction between cultural activity and new technology. This paper is based on a lecture given to the Chinese Academy of Social Sciences in November 2012. It builds on a substantial and scientifically well-grounded body of international research, which is now beginning to receive some serious attention in policy circles, by drawing out the above vital conclusions, and demonstrating their scientific validity. JEL codes: O10; N0; Z1
    Keywords: Crisis; Development; Growth; Inequality; State; Culture; Environment; Technology; Creativity; investment’ BRICS; Crisis; Development; Growth; Inequality; State; Culture; Environment; Technology; Creativity; investment’ BRICS
    JEL: N0 O10 Z1
    Date: 2013–04–02
  3. By: Hina, Hafsa; Qayyum, Abdul
    Abstract: This study employs the Mundell and Fleming (1963) traditional flow model of exchange rate to examine the long run behavior of rupee/US $ for Pakistan economy over the period 1982:Q1 to 2010:Q2.This study investigates the effect of output levels, interest rates and prices and different shocks on exchange rate. Hylleberg, Engle, Granger, and Yoo (HEGY) (1990) unit root test confirms the presence of non-seasonal unit root and finds no evidence of biannual and annual frequency unit root on the level of series. Johansen and Juselious (1988,1992) likelihood ratio test indicates three long-run cointegrating vectors. Cointegrating vectors are uniquely identified by imposing structural economic restrictions of purchasing power parity (PPP), uncovered interest parity (UIP) and current account balance. Finally, the short-run dynamic error correction model is estimated on the bases of identified cointegrated vectors. The speed of adjustment coefficient indicates that 17 percent of divergence from long-run equilibrium exchange rate path is being corrected in each quarter. US war on Afghanistan has significant impact on rupee in short run because of high inflows of US aid to Pakistan after 9/11.
    Keywords: Exchange Rate Determination, Keynesian Model, HEGY Seasonal Unit Root, Cointegration, Error Correction Model, Pakistan
    JEL: C3 C32 C5 F3 F31
    Date: 2013

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