nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒11‒21
eleven papers chosen by
Karl Petrick
Western New England University

  1. The principle of effective demand: Marx, Kalecki, Keynes and beyond By Hein, Eckhard
  2. Revisiting Cantillon's admirable theory of distribution and value - A misinterpretation corrected By Roy Grieve
  3. Beyond capital fundamentalism: Harrod, Domar and the history of development economics By Mauro Boianovsky
  4. The Crisis in Economic Theory A Review Essay By Kevin D. Hoover
  5. "The Roads Not Taken: Graph Theory and Macroeconomic Regimes in Stock-flow Consistent Modeling" By Miguel Carrion Alvarez; Dirk Ehnts
  6. Is Neo-Walrasian Macroeconomics a Dead End? By Marchionatti, Roberto; Sella, Lisa
  7. On the Necessity of Money in Smith’s Commercial Society and Marx’s Commodity Producing Economy By Isabella Weber
  8. Paul Samuelson’s Historiography: More Wag Than Whig By E. Roy Weintraub
  9. Macroeconomics, climate change and 'recomposition' of consumption By Ian Gough
  10. Households and heat stress: estimating the distributional consequences of climate change By Park,Jisung; Hallegatte,Stephane; Bangalore,Mook; Sandhoefner,Evan
  11. Where is Capitalism going? : Keynes, Kagawa, and Piketty By Yoshio Takigawa

  1. By: Hein, Eckhard
    Abstract: The principle of effective demand, and the claim of its validity for a monetary production economy in the short and in the long run, is the core of heterodox macroeconomics, as currently found in all the different strands of post-Keynesian economics (Fundamentalists, Kaleckians, Sraffians, Kaldorians, Institutionalists) and also in some strands of neo-Marxian economics, particularly in the monopoly capitalism and underconsumptionist school In this contribution, we will therefore outline the foundations of the principle of effective demand and its relationship with the respective notion of a capitalist or a monetary production economy in the works of Marx, Kalecki and Keynes. Then we will deal with heterodox short-run macroeconomics and it will provide a simple short-run model which is built on the principle of effective demand, as well as on distribution conflict between different social groups (or classes): rentiers, managers and workers. Finally, we will move to the long run and we will review the integration of the principle of effective demand into heterodox/post-Keynesian approaches towards distribution and growth.
    Keywords: effective demand,employment,distribution,growth,Marx,Kalecki,Keynes
    JEL: E20 E21 E22 E24 E25
    Date: 2015
  2. By: Roy Grieve (Department of Economics, University of Strathclyde)
    Abstract: This paper returns to an issue I discussed in a review article published some twenty years ago** The subject under discussion was Anthony Brewer’s 1992 study*** Richard Cantillon: Pioneer of Economic Theory. That review provided a vehicle for consideration of Cantillon’s theory of value, particularly for questioning Brewer’s rejection of Cantillon’s analysis, on the ground that he (Brewer) understood it to propose a dead-end “land theory of value†which attempted to account for equilibrium relative values in terms of quantities of “land embodiedâ€. In the present paper a fuller critique of that land-embodied interpretation of Cantillon’s value theory is presented. From what might be described as a Sraffian perspective, we – contrary to Brewer - interpret Cantillon as offering a perceptive and valid analysis of the operation of the market mechanism in the case of a surplus producing system in which distribution is determined - exogenously to the price system - by social factors of property ownership and economic power. We suggest that, given Cantillon’s view (in a pre-industrial context) of land as a country’s principal economic resource, he may be said to have told a general story associating equilibrium commodity prices (“intrinsic valuesâ€) with the quantity and quality of land employed in production. Appreciating that an approach in terms simply of physical quantities of land could not serve to explain relative values under the complexity of real world conditions, he expressed his understanding in the form of a “cost of production theory†explaining intrinsic values as represented by the costs – comprised of wages and rents measured in money – incurred by entrepreneurs for the use of heterogeneous inputs of land and labour. Labour costs can be translated into land costs via Cantillon’s “Parâ€. These production costs reflect both the use of resources and the balance of economic power within society. Thus, on the subject of “intrinsic value†we read Cantillon as following not a crude land-embodied treatment, but instead a cost of production approach, an approach which would be further developed by the Classics and Marx as appropriate to later economic and social conditions.
    Keywords: Richard Cantillon's Essai, Value and Distribution; the "Par", the alleged "land theory" of value
    JEL: B11
    Date: 2015–10
  3. By: Mauro Boianovsky
    Abstract: The origins of “capital fundamentalism’ – the notion that physical capital accumulation is the primary determinant of economic growth – have been often ascribed to H arrod’s and Domar’s proposition that the rate of growth is the product of the saving rate and of the outpu t - capital ratio. I t is argued here that development planners in the 1950s reinterpreted and adapted the growth formula to their agenda in order to calculate “capital requirements”. Development economists at the time (Lewis, Hirschman, Rostow and others) were aware that Harrod’s and Domar’s growth models addressed economic instability based on Keynesian multiplier analysis, which diff ered from their concern with long - run growth in developing economies. Harrod eventual ly applied his concept of the natural gro wth rate to economic development . He claimed that the growth of developing economies was determined by their ability to implement technical progress – not by capital accumulation, subject to diminishing returns. Dom ar pointed out that the increm ental capital - output ratio was more likely a passive result of the interaction between the propensity to save and technological progress, instead of a causal factor in the determination of growth.
    Keywords: Capital fundament alism, Harrod, Domar, development economics, saving
    JEL: B22 B31 O10
    Date: 2015
  4. By: Kevin D. Hoover
    Abstract: The Great Recession and the financial crisis of 2007-09 prompted ca lls for fundamental reforms of economic theory. The role of theory in economics and in recent economic events is considered in light of two recen t books: the sociologist Richard Swedberg’s The Art of Social Theory and the economist André Orléan’s The Empire of Value: A New Foundation for Economics .
    Keywords: economic theory, neoclassical economics, sociology, abduction, mimetic hypothesis, monetary economy, fina ncial crisis, Great Recession
    JEL: A12 B41 A11 B40
    Date: 2015
  5. By: Miguel Carrion Alvarez; Dirk Ehnts
    Abstract: Standard presentations of stock-flow consistent modeling use specific Post Keynesian closures, even though a given stock-flow accounting structure supports various different economic dynamics. In this paper we separate the dynamic closure from the accounting constraints and cast the latter in the language of graph theory. The graph formulation provides (1) a representation of an economy as a collection of cash flows on a network and (2) a collection of algebraic techniques to identify independent versus dependent cash-flow variables and solve the accounting constraints. The separation into independent and dependent variables is not unique, and we argue that each such separation can be interpreted as an institutional structure or policy regime. Questions about macroeconomic regime change can thus be addressed within this framework. We illustrate the graph tools through application of the simple stock-flow consistent model, or "SIM model," found in Godley and Lavoie (2007). In this model there are eight different possible dynamic closures of the same underlying accounting structure. We classify the possible closures and discuss three of them in detail: the "standard" Godley–Lavoie closure, where government spending is the key policy lever; an "austerity" regime, where government spending adjusts to taxes that depend on private sector decisions; and a "colonial" regime, which is driven by taxation.
    Keywords: Stock-flow Consistent Models; Closures; Graph Theory; Macroeconomic Regimes; Methodology
    JEL: E17
    Date: 2015–11
  6. By: Marchionatti, Roberto; Sella, Lisa (University of Turin)
    Abstract: After the ‘new Great Crisis’ exploded in 2008 it is widely recognized that mainstream macroeconomics - the last result of Lucas’s anti-Keynesian revolution of the 1980s which tried to give macroeconomics sound neo-Walrasian microeconomic bases - has failed to anticipate and then appraise the crisis. Has this crisis revealed a failure of this macroeconomics as a scientific theory? Mainstream macroeconomists defend their models on the basis of their alleged superiority in terms of clarity and coherence. The thesis of this paper is that this claim about superiority is false. The paper argues that the reasons for the failure of mainstream macroeconomics – in particular its poor predictive performance and interpretative weakness - reside in the implications of the neo-Walrasian legacy and the problems connected with the implementation of that programme
    Date: 2015–05
  7. By: Isabella Weber (Peterhouse College, University of Cambridge)
    Abstract: This paper argues that both Smith and Marx find money to be necessary for the specialization of individual producers and the regulation of social production by market exchange. Increasing returns to scale constitute an incentive towards individual specialization of production and social division of labor. However, specialization is conditioned on the ability of specialized producers to provide their needs by exchange. A stable equilibrium of individually diversified production can emerge when social norms or limits to exchange prevent specialization. Specialization under conditions of barter constitutes a highly unstable equilibrium since the specialized producers fail regularly to provide their needs by exchange. It tends to either collapse back into a diversified equilibrium or to give rise to a socially accepted general equivalent, i.e. money. Money greatly increases the strategic complementarity of specialization by providing sufficient exchange certainty and a relatively stable specialized equilibrium can emerge.
    Date: 2015–11
  8. By: E. Roy Weintraub
    Abstract: In this review essay of Medema’s and Waterman’s collection of some of Samuelson’s writings in the history of economics, the author argues that Samuelson’s claim to have written “Whig History” is spurious. Moreover the author argues that Samuelson’s own writings on modern economics are , whether explicit or not, profoundly autobiographical. Samuelson, in constructing a literature ostensibly about c ontemporary economics, was simultaneously constructing a literature in which he and contemporary economics could be jointly considered and appraised.
    Keywords: Paul A. Samuelson, historiography, Whig History, aut obiography, history of economics
    JEL: B2 D5
    Date: 2015
  9. By: Ian Gough
    Abstract: Macroeconomic policy should be evaluated, he says, and devised according to sustainability criteria alongside economic and social criteria. Economic goals whether growth of GDP productivity or competitiveness, should not trump equity/justice or sustainability. But nor should environmental goals trump social goals. The urgent challenge addressed in this PRIME e-publication is to develop a macroeconomic framework that supports ‘eco-social’ policies to pursue both goals simultaneously. Just and sustainable macroeconomic planning should take into account two policy dimensions: the emissions intensity of different items of consumption, and the necessitousness of these items. Ways of measuring both of these are proposed. When personal consumption in the UK is analysed in this way, an awkward policy dilemma immediately appears: almost all necessities are high carbon, while most ‘luxuries’ emit lower than average GHGs. Transport is also high carbon and comprises both necessary spending given current infrastructure and luxury spending. Thus a radical macroeconomic framework needs to endorse and devise new ‘eco-social’ policies to serve both justice and sustainability goals, alongside income redistribution and public social consumption. Three approaches are suggested: taxing high-carbon luxury consumption, variable pricing of high-carbon necessities, and rationing carbon.
    JEL: N0
    Date: 2015–10
  10. By: Park,Jisung; Hallegatte,Stephane; Bangalore,Mook; Sandhoefner,Evan
    Abstract: Recent economic research documents a range of adverse welfare consequences from extreme heat stress, including health, labor productivity, and direct consumption disutility impacts. Without rapid adaptation, climate change will increase the burden of heat stress experienced by much of the world?s population in the coming decades. What will the distributional consequences of this added heat stress be, and how might this affect optimal climate policy? Using detailed survey data of household wealth in 690,745 households across 52 countries, this paper finds evidence suggesting that the welfare impacts of added heat stress caused by climate change may be regressive. Specifically, the analysis finds that poorer households tend to be located in hotter locations across and within countries, and poorer individuals are more likely to work in occupations with greater exposure to the elements not only across but also within countries. These findings?combined with the fact that current social cost of carbon estimates do not include climate damages arising from the productivity impacts of heat stress?suggest that optimal climate policy, especially when allowing for declining marginal utility of consumption, involves more stringent abatement than currently suggested, and that redistributive adaptation policies may be required to reduce the mechanical inequities in welfare impacts arising from climate change.
    Keywords: Economic Theory&Research,Global Environment,Climate Change Mitigation and Green House Gases,Science of Climate Change,Climate Change Economics
    Date: 2015–11–05
  11. By: Yoshio Takigawa (Graduate School of Economics, Kobe University)
    Date: 2015–11

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