nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒03‒29
ten papers chosen by
Karl Petrick
Western New England University

  1. "Keynes's Theories of the Business Cycle: Evolution and Contemporary Relevance" By Pablo Gabriel Bortz
  2. Why Was Keynes Not Awarded the Nobel Peace Prize After Writing "The Economic Consequences of the Peace"? By Jonung, Lars
  3. The Macroeconomics of Financial Speculation By Alp Simsek
  4. Testing Marx. Income inequality, concentration, and socialism in late 19th century Germany By Charlotte Bartels; Felix Kersting; Nikolaus Wolf
  5. Economic Fluctuations and Pseudo-Wealth By Joseph E. Stiglitz
  6. The Relation of Neoclassical Economics to other Disciplines: The case of Physics and Psychology By Stavros, Drakopoulos
  7. Edith T. Penrose: Economist of "The Ordinary Business of Life" By Pattit, Jason M.; Pattit, Katherina G.; Spender, J C
  8. Review of “Essays in Keynesian Persuasion” by Maria Cristina Marcuzzo By Dimand, Robert
  9. Review of “The Routledge Handbook of the History of Women’s Economic Thought” by Kirsten Madden and Robert W. Dimand By May, Ann Mari
  10. Schumpeter's paradox reconsidered: The need for a theory of circular flow By Seo, Takashi

  1. By: Pablo Gabriel Bortz
    Abstract: This paper traces the evolution of John Maynard Keynes's theory of the business cycle from his early writings in 1913 to his policy prescriptions for the control of fluctuations in the early 1940s. The paper identifies six different "theories" of business fluctuations. With different theoretical frameworks in a 30-year span, the driver of fluctuations--namely cyclical changes in expectations about future returns--remained substantially the same. The banking system also played a pivotal role throughout the different versions, by financing and influencing the behavior of return expectations. There are four major changes in the evolution of Keynes's business cycle theories: a) the saving–investment framework to understand changes in economic fluctuations; b) the capabilities of the banking system to moderate the business cycle; c) the effectiveness of monetary policy to fine tune the business cycle through the control of the short-term interest rate or credit conditions; and d) the role of a comprehensive fiscal policy and investment policy to attenuate fluctuations. Finally, some conclusions are drawn about the present relevance of the policy mix Keynes promoted for ensuring macroeconomic stability.
    Keywords: John Maynard Keynes; Business Cycle; Fiscal Policy; Monetary Policy; Financial System; Uncertainty
    JEL: B31 E12 E32 E44 E63
    Date: 2021–03
  2. By: Jonung, Lars (Department of Economics, Lund University)
    Abstract: John Maynard Keynes became world famous with the publication of The Economic Consequences of the Peace in 1919, a harsh critique of the Versailles peace treaty. As a consequence, Keynes was nominated by German professors in economics for the Nobel Peace Prize three years in a row, 1922, 1923 and 1924. Because Keynes was put on the shortlist of candidates, he was evaluated in an advisory report in 1923, followed by one in 1924, prepared for the Nobel Committee of the Norwegian parliament. This paper summarizes the two reports on Keynes. The appraisals were highly appreciative of Keynes’s book as well as of his subsequent newspaper and journal articles on the peace treaty, raising the question: why did Keynes not receive the Peace Prize? The appraiser of Keynes even informed Keynes that he was “one of the foremost candidates proposed for the Nobel Peace Prize.” However, the Peace Prize was not awarded in 1923 and 1924 although Keynes was declared a worthy laureate. There are no protocols that shed light on this issue. Still, the events surrounding the evaluation process, in particular the public clash between two advisors of the Prize Committee on Keynes’s account of the negotiations at Versailles, encourage a speculative answer.
    Keywords: John Maynard Keynes; Nobel Peace Prize; Treaty of Versailles; reparations; Dawes Plan; Bretton Woods; Norway
    JEL: A11 B10 B31 D70 E12 E60 F30 F50 N10 N40
    Date: 2021–03–03
  3. By: Alp Simsek
    Abstract: I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about worst-case scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare.
    JEL: E00 E12 E21 E22 E32 E44 E50 E70 G00 G01 G11 G12 G40
    Date: 2021–02
  4. By: Charlotte Bartels (DIW Berlin); Felix Kersting (Humboldt University Berlin); Nikolaus Wolf (Humboldt University Berlin)
    Abstract: We study the dynamics of income inequality, capital concentration, and voting outcomes before 1914. Based on new panel data for Prussian counties and districts we re-evaluate the key economic debate between Marxists and their critics before 1914. We show that the increase in inequality was strongly correlated with a rising capital share, as predicted by Marxists at the time. In contrast, rising capital concentration was not associated with increasing income inequality. Relying on new sector×county data, we show that increasing strike activity worked as an offsetting factor. Similarly, the socialists did not directly benefit from rising inequality at the polls, but from the activity of trade unions. Overall, we find evidence for a rise in the bargaining power of workers, which limited the increase in inequality before 1914.
    Keywords: Income Inequality, Concentration, Top Incomes, Capital Share, Germany
    JEL: D31 D63 J31 N30
    Date: 2021–03
  5. By: Joseph E. Stiglitz
    Abstract: What can explain the large changes in aggregate demand that occur in the absence of any seemingly corresponding shock to the underlying state variables of the economy? We show that macroeconomic volatility can arise from dispersions of beliefs among agents. These dispersions give rise to bets and other trades in speculative assets. Such trades give rise to pseudo-wealth, wealth that individuals believe they have on the basis of expectations of returns on these gambles. In the aggregate, when there are enough opportunities for trade and large enough dispersions in beliefs, this perceived wealth may be dangerously untethered from either market wealth or the real wealth of the economy. Given the increased dispersion in beliefs that naturally arises from unprecedented shocks, the theory of pseudo-wealth provides new understandings of both the origins of unanticipated fluctuations and their magnitude, markedly different from prevailing theories grounded in common knowledge and beliefs among individuals. This paper explores the empirical and theoretical underpinnings of pseudo-wealth, links the concept to observed macroeconomic fluctuations, and lays out a research agenda that might help us better understand the role of pseudo-wealth and the circumstances in which it is pronounced.
    JEL: B22 E03 E21 E44 E60 G01 G12 G18
    Date: 2021–01
  6. By: Stavros, Drakopoulos
    Abstract: Since the emergence of the classical school, the scientific ideal of physical sciences has been a constant influence on economic theory and method. Its influence is still present in contemporary neoclassical economics. Similarly to the case of physics, classical economists were very open in incorporating psychological elements in the economic discourse. This openness towards psychology continued with prominent Marginalist economists, like Jevons and Edgeworth, who were eager to draw from psychological ideas found in earlier authors. In the first decades of the 20th century, a major conceptual change in economics took place which is also known as the Paretian turn. This conceptual change, initiated mainly by Vilfredo Pareto, and completed, in the first decades of the 20th century, by J. Hicks, R. Allen and P. Samuelson, attempted to remove all psychological notions from economic theory. The legacy of the Paretian turn can still be identified in the significant reluctance of the contemporary orthodox economic theory to incorporate the findings of the new behavioral economics, a field with a discernable psychological bent. This chapter argues that the history of the relation of those two subjects to economics can lead to some potentially useful observations concerning the nature of contemporary neoclassical economics. It will also be maintained that the relationship of neoclassical economics to physics ultimately constrained its interaction with psychology.
    Keywords: Economic Methodology; Economics and Psychology; Economics and Physics; History of Economic Thought
    JEL: B0 B40
    Date: 2021–03
  7. By: Pattit, Jason M.; Pattit, Katherina G.; Spender, J C
    Abstract: When Edith T. Penrose became Fritz Machlup’s student in the late-1940s, she found little in mainstream or Austrian economics to guide her as she began her explorations into the growth of the firm. While she acknowledged Kenneth Boulding’s influence on her work, we suspect she drew on a broader tradition that includes, among others, Alfred Marshall, Frank Knight (Boulding’s teacher), and Ronald Coase. We seek to demonstrate Penrose’s connection to this ‘invisible college’, particularly to Knight, and its influence on her investigation of the growth of the firm. Given mainstream economists’ pursuit of rigor at the expense of practical relevance and their continuing inattention to Coase’s work, we suggest Penrose’s work on the growth of the firm can be understood as part of a broader tradition represented by this ‘invisible college’, leading to useful new insights for business strategy and business ethics scholarship.
    Keywords: Penrose’s language of the firm; the theory of the growth of the firm; business ethics
    JEL: M0 N0 N8
    Date: 2021–03
  8. By: Dimand, Robert
    Abstract: Book Review of “Essays in Keynesian Persuasion” by Maria Cristina Marcuzzo
    Date: 2020–09–01
  9. By: May, Ann Mari
    Abstract: Book Review of “The Routledge Handbook of the History of Women’s Economic Thought” by Kirsten Madden and Robert W. Dimand
    Date: 2020–09–01
  10. By: Seo, Takashi
    Abstract: This study focuses on the well-known theme of Schumpeter’s system of economic theory. Specifically, the study discusses Schumpeter’s paradoxical stance on Walras’ general equilibrium theory, which Louçã (1997) called Schumpeter’s paradox. We reconsider the significance of the notion of circular flow in business cycle theory, after recognising the continuity from static to dynamic theory, and then to business cycle theory that integrates these theories. In doing so, we focus on the fact that Schumpeter called the equilibrium in the cyclical process a circular flow or a stationary process and proposed his own concept of neighbourhoods of equilibrium, which was not found in Walras’ general equilibrium theory. Through such an analysis, we propose that Schumpeter’s paradox is eased to some degree and that the theory of circular flow should be explored further.
    Keywords: Schumpeter, Walras, Kuznets, Business cycles, Circular flow, General equilibrium, Neighbourhood of equilibrium
    JEL: B25 B31 B41 E32
    Date: 2021–03–25

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