nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2022‒04‒11
eight papers chosen by
Karl Petrick
Western New England University

  1. Learning from distant cousins? Post-Keynesian Economics, Comparative Political Economy and the growth models approach By Engelbert Stockhammer; Karsten Kohler
  2. Had Keynes Read More Veblen: The Imperative of a Scientific Theory of Human Behavior By Jon D. Wisman
  3. It is not la vie en rose. New insights from Graziani’s theory of monetary circuit By Marco Veronese Passarella
  4. Alternative uses of functional finance: Lerner, MMT and the Sraffiansh By Summa, Ricardo de Figueiredo
  5. Capital Flows and the Eurozone's North-South Divide By Karsten Kohler
  6. Locating Industrial Policy in Developmental Transformation: Lessons from the Past, Prospects for the Future By Ben Fine; Seeraj Mohamed
  7. What is financial inclusion? A critical review By Thereza Balliester Reis
  8. The Relevance of Financialization for African Economies: Lessons from South Africa By Sam Ashman; Ben Fine; Ewa Karwowski

  1. By: Engelbert Stockhammer; Karsten Kohler
    Abstract: Since the Global Financial Crisis there has been growing interest in post-Keynesian macroeconomic theory by political economists. In particular the recent growth models approach in Comparative Political Economy (CPE) draws heavily on Kaleckian macroeconomics of demand regimes. This paper, firstly, traces the disintegration of 19th century political economy and highlights that many streams within heterodox economics are a continuation of the political economy project, as are the subfields of CPE and International Political Economy in the social sciences. Secondly, the paper gives an overview of the growth models approach and its relation to post-Keynesian economics (PKE). It clarifies different strategies of identifying growth models empirically, namely GDP growth decomposition versus analysing growth drivers, and it highlights changes in growth models since the Global Financial Crisis. Finally it identifies opportunities and challenges that emerge from a continued engagement of PKE with political economy and with CPE in particular.
    Keywords: Post-Keynesian Economics, Comparative Political Economy, growth models, varieties of capitalism
    JEL: B20 B50 E12 O43 P51
    Date: 2022–03
  2. By: Jon D. Wisman
    Abstract: John Maynard Keynes rejected the strict assumption of rational behavior embraced by neoclassical economists, providing causal importance to instincts, habits, and intuition. However, he mostly failed, as did they, to incorporate in his analysis that human decisions are frequently, if not most often, dependent upon the decisions of others. Further, and more particularly, he failed to grant importance to the fact that humans struggle for the recognition and social status necessary for social and self-respect. Thorstein Veblen also rejected the neoclassical expression of rational behavior, and 37 years before Keynes's The General Theory, focused upon interdependence in decision making and status competition by drawing upon Charles Darwin's theory of evolutionary biology to ground in science his theory of human behavior. Had Keynes read Veblen's The Theory of the Leisure Class (1899), he may have recognized the need in his own theory to account for interpersonal decision making and especially of incorporating the struggle for social recognition and status. This article examines how drawing upon aspects of Veblen's work would have enriched the explanatory power of Keynes's economics as well as that of those engaged in furthering Keynes's project. It concludes with reflections on the necessity that economic analysis, and social science generally, be constructed upon a scientifically-grounded conception of human behavior.
    Keywords: Marginal propensity to consume, Conspicuous consumption, Darwinism, Instinct, Status, Emulation
    JEL: B22 B41 E12 E71
    Date: 2022
  3. By: Marco Veronese Passarella (University of Leeds)
    Abstract: The aim of this paper is twofold. First, it shows how a standard stock-flow consistent model (SFCM) can be modified to embed some fundamental insights from Graziani’s theory of monetary circuit (TMC). Second, it aims at addressing some common mis- conceptions about the TMC. More precisely, it is argued that: a) a market-clearing price mechanism does not necessarily imply a neoclassical-like closure of the model; b) the ways in which SFCMs and the TMC define bank loans are mutually consistent, although they are based on different accounting periods; c) consumer credit is final finance, not initial finance; d) the paradox of profit is not a logical conundrum, but an abstract counterfactual that allows shedding light on a neglected role of government spending; e) overall, the TMC can be regarded as a “Marxian” rendition of Keynes’s method of aggregates.
    Keywords: Theory of Monetary Circuit, Stock-Flow Consistent Models, Macroeconomics, Monetary Economics
    JEL: E11 E12 E16 E17
    Date: 2022–03
  4. By: Summa, Ricardo de Figueiredo
    Abstract: In the present paper, we will construct three comparable 'toy models' to evaluate the alternative uses of functional finance from Lerner, MMT, and the Sraffians. First, we will argue that the general functional finance framework can be separated from the specific views of Lerner on how the private sector and the economy works and its policy recommendations. Then, we use this separation to provide an alternative comparison between Lerner and the MMT to that proposed by Wray (2018), arguing that both agree with the general functional finance framework but disagree on how the private sector and the economy works, the policy objectives and the policy toolkit and recommendations. We argue that Lerner never abandoned his functional finance framework or his theoretical principles towards Monetarism. Finally, we will extend the same scheme to evaluate the functional finance framework from the Sraffian standpoint, motivated by recent attempts to check the compatibility of a specific Sraffian model - the supermultiplier - with functional finance (Skott et al, 2022, Fiebiger, 2021). The presentation of the three comparable 'toy models', by stressing the shared principles and specific disagreements between Lerner, MMT and the Sraffians allows us to discuss different policies and consequences of government's active role in promoting expansionary policies.
    Keywords: Functional finance,Abba Lerner,MMT,Sraffians,Macroeconomic policies
    JEL: E11 E12 E52 E62
    Date: 2022
  5. By: Karsten Kohler
    Abstract: The paper offers a monetary perspective on the role of capital flows in the Eurozone's north-south divide. It argues that finance-centric narratives in Comparative Political Economy rightly emphasise financial instability in the periphery, but that the role of capital flows therein requires clarification. The paper draws on post-Keynesian monetary theory, coherent accounting, and balance-of-payments data to make three main points. First, the focus on the financial account as a driver of current accounts should be abandoned in favour of an analysis of gross capital flows. Gross flows need not stem from excess savings in core countries and can be independent from trade flows. Second, speculative portfolio flows into bond markets and foreign direct investment into real estate are causally more important than interbank flows in driving financial instability. Third, rising spreads in the periphery during the Eurozone crisis and the outbreak of the pandemic were not triggered by balance-of-payments problems but by a reversal of speculative flows in government bond markets. The argument suggests that Comparative Political Economy should dedicate more attention to institutions that render peripheral countries particularly susceptible to speculative capital flows into asset markets.
    Keywords: Gross capital flows, balance-of-payments, current account imbalances, Eurozone crisis, sudden stop, comparative political economy, post-Keynesian macroeconomics
    JEL: E12 F32 F36 F41 O57
    Date: 2022–03
  6. By: Ben Fine (Department of Economics, SOAS University of London); Seeraj Mohamed (Parliamentary Budget Office, South Africa)
    Abstract: What can we learn from structural change of countries that successfully industrialised in the 20th and 21st century? This paper explains that current attempts at economic transformation of the structure of countries’ economies, including industrial development, have to be analysed and understood within the shift to the new, financialised phase of capitalism and the imposition of neoliberal practices, interests and ideologies within countries and on their international economic and financial relations. Rather than reflecting an ideology of the reduction of the role of the state, neoliberalism has entailed the redirection and transformation of the control and role of the state in the provision of welfare, social security, industrial development and deregulation of trade, labour and finance as well as reorientation of both domestic macroeconomic policies and the global financial architecture. The lessons that can be learned from studying late industrialising countries, such as the Asian Tigers, that had achieved relatively high levels of industrial transformation, have to take into account this context, including the analytical reduction, even implosion, of concepts such as development and industrial policy. Further, one has to understand the limitation of current mainstream economics approaches in the context of the redefined and degraded notions of development and the roles of the state that neoliberalism deployed defensively in response to ideas that developmental states played key roles in economic transformations of the late industrialisers. First, we revisit the nature and role of industrial policy. Second, we situate these in relation to one another and what lessons we have learned from the developmental state paradigm and how we might take these lessons forward. And, third, we turn to the relationship between economic and social development. We are mindful, as already suggested, that neoliberalism, as the current stage of capitalism – now longer lasting than its “Keynesian†predecessor – is underpinned by financialisation, something that is increasingly acknowledged across the literature but which needs to be taken into account other than treating finance as one amongst many other factors.
    Keywords: Development; Developmental State; Economic Transformation; Financialisation; Industrial Policy; Neoliberalism
    JEL: G00 H11 O1 P10
    Date: 2022–01
  7. By: Thereza Balliester Reis (Department of Economics, SOAS University of London)
    Abstract: Financial inclusion (FI) has become a key policy for poverty reduction in developing countries. However, there is no consensus on what FI comprises, who should be included and who will deliver this inclusion. The different interpretations of the concept may lead to implementations that do not correspond to the original intent. Moreover, by making certain assumptions implicit, FI may be a policy that merely replicates microfinance initiatives. In order to illustrate the inconsistencies in the existing literature, this article displays a literature review of 67 studies about the definition of FI. Built on the systematic review approach, studies are selected based on inclusion and exclusion criteria, as well as an explicit search strategy, thus providing a reliable and replicable outcome. After identifying the studies, we present a critical discussion about the underlying theoretical and empirical implications of the definitions of FI. This assessment enables a better understanding of FI and its framing. To conclude, a plain definition is suggested to ensure transparency and comparability of FI research.
    Keywords: Financial inclusion; financial development; systematic review; definition
    JEL: B50 G50 O12
    Date: 2021–12
  8. By: Sam Ashman (School of Economics, University of Johannesburg); Ben Fine (Department of Economics, SOAS University of London); Ewa Karwowski (Department of International Development, King's College London)
    Abstract: While research has highlighted that financialization critically affects African economies and societies through its effect upon commodity prices, international value chain participation, and land, there are few accounts of the systemic and macroeconomic importance of financialization for African societies; the big exception being work on South Africa. The South African case, despite its historical peculiarities, has a broader relevance for African economies since the country combines many characteristics typical especially for the sub-Saharan region – including resource richness, a persistent trade deficit, and a volatile exchange rate – while its financialization trajectory is ahead of other African economies because financial liberalization was pioneered as early as the late 1970s. This article summarizes the effects of financialization on South Africa, holding a warning for other African countries which have increasingly engaged in financial liberalization since the 1990s. Furthermore, we detail how financialization has facilitated and furthered corruption in South Africa, in turn undermining democratic processes. Thus, we contribute to research on financialization on democracy, a field hardly considered in the context of developing countries.
    Keywords: financialization; neoliberalism; South Africa; State Capture
    JEL: G00 H11 O1 P10
    Date: 2021–11

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