A review of this chapter follows:
(1) Sraffians and Kaleckians versus Fundamentalist KeynesiansSo what is the state of the debate today?
The Sraffians and Kaleckians had a number of criticisms of Keynes’ General Theory and the fundamentalist Post Keynesians.
First, the Sraffians. King (2002: 206) notes that Sraffians repudiate all forms of supply and demand analysis and the Marshallian microfoundations that fundamentalist Keynesians use.
There was also a debate about whether economic analysis should be focused on the long or the short period, since Keynes had concentrated on the short period, but Sraffians were more interested in the long period. At one stage, even Joan Robinson thought that Post Keynesians should use Sraffa’s long period analysis to displace attempts to use general equilibrium theory to interpret the General Theory (King 2002: 206).
Garegnani (1983) was an important statement of the Sraffian position. Garegnani argued that there were two routes to the principle of effective demand, as follows:(1) the first was, via Sraffa, the critique of neoclassical real capital and labour market theory, andGaregnani pointed out that the Cambridge capital controversies had shown that the demand curves for labour and capital were not necessarily downward sloping or well behaved, and that this was sufficient to invalidate neoclassical theory, a critique which was not open to Keynes since the capital critique happened after his death (King 2002: 207).
(2) the second, via Keynes, which uses liquidity preference and rejects neoclassical monetary theory.
The level of employment and output were determined by effective demand, but in essence, although money was important, effective demand could be explained by the consumption function and the multiplier, without Keynes’ role for expectations, uncertainty or money as an explanation of involuntary unemployment in the short period (King 2002: 207). The problem, according to Garegnani, was that Keynes had not provided an alternative to the neoclassical theory of output in the long period (King 2002: 207).
Garegnani concluded:“This does not mean that ‘money does not matter’, or that ‘real’ phenomena will again emerge as independent of ‘monetary’ factors. What I contend is only that, Keynes’s liquidity preference is not necessary to establish the principle of effective demand in the short or the long period. Money does play an essential role for effective demand in that … it allows the circle production-income-demand-production to break in the savings-investment link; but this, so far as I can see, has little to do with an explanation of the rate of interest by means of Keynes’s liquidity preference.” (Garegnani 1983: 78).In short, according to Garegnani, the Sraffian real critique of neoclassical capital theory provided a better foundation for the principle of effective demand (King 2002: 207).
Next, we have the Kaleckian objections to Keynes and fundamentalist Post Keynesianism, which often amounted to the charge that Kalecki’s theories were more realistic in relation to modern capitalist economies than some of Keynes’ ideas.
The early Joan Robinson had already argued that Kalecki’s macroeconomics were superior to Keynes’ (King 2002: 207). Sawyer (1987) argued that Kalecki had integrated imperfect competition and oligopoly into his economics and thus provided a better theory than Keynes (King 2002: 208). Furthermore, in Kalecki’s theory, wage and profit shares were determined by the degree of monopoly rather than marginal productivity, and real wages by union power rather than supply and demand for labour (King 2002: 208). Furthermore, there was an important role for retained earnings in investment that Keynes had neglected (King 2002: 208).
Kaleckians also argued for a greater role for social power in economic analysis, and contended that Kalecki had employed a theory of endogenous money when Keynes had assumed exogenous money in the General Theory (King 2002: 208).
(2) Kaleckians and Fundamentalist Keynesians versus Sraffians
Next, we have the Kaleckian and fundamentalist Post Keynesian criticisms of Sraffian economics.
First, the fundamentalist Post Keynesian view of Sraffa. After Joan Robinson broke with the Sraffians, she later produced a fundamentalist Post Keynesian critique of the Sraffians (Robinson 1979). Robinson charged that the Sraffians ignored the role of fundamental uncertainty, the role of expectations and the precarious basis on which expectations were formed in capitalist societies (King 2002: 209).
Sraffian economics was also in error by focussing on static and timeless equilibrium positions and on the “fetish” of the long period (King 2002: 209).
Robinson now thought that economics should be mainly concerned with the short period and that Keynes’ marginal efficiency of capital was a mistake:“[sc. Keynes] made a fatal mistake in offering a quasi-long-period definition of the inducement to invest as the ‘marginal efficiency of capital’, that is, the profit that will be realised on the increment to the stock of capital that results from current investment and, still worse, identified the profitability of capital with its social utility. This was an element in the old doctrine from which he failed to escape. He had an alternative concept of the inducement to invest as the expected future return on sums of finance to be devoted to investment. Minsky (1976) points out that he did not seem to recognise the difference between the two formulations. If he had stuck to his short-period brief, he would have used only the second.” (Robinson 1979: 179–180).She also charged that Garegnani’s long period and the normal rate of profit in the long run were metaphysical concepts (King 2002: 209; Robinson 1979: 179–180).
Hyman Minsky was also scathing about Sraffian long period equilibrium positions (Minsky 1990), and the Sraffian uniform long run rate of profit was also unacceptable to Minsky.
Minsky also argued, in contrast to Sraffians, that uncertainty and money were fundamental elements of capitalism and the basis of any viable theory, as Keynes had argued (King 2002: 209; Minsky 1990: 363–366).
The Kaleckian critique of Sraffian economics was developed in Halevi and Kriesler (1991), Kriesler (1992), Sawyer (1992) and Steindl (1993).
Halevi and Kriesler (1991) also attacked as unrealistic concepts (1) the Sraffian idea of a tendency to a uniform long-run rate of profit and (2) the tendency to long-run natural prices. Kalecki, they argued, rightly focussed on the short period, not the dubious long period as in Sraffa, and also Sraffians were mistaken in their treatment of the concept of capacity utilisation (King 2002: 210).
(3) Fundamentalist Keynesians and Sraffians versus Kaleckians
Finally, we have the fundamentalist Post Keynesian and Sraffian criticisms of Kaleckian economics.
Fundamentalist Post Keynesian reception of Kalecki has been mixed. Paul Davidson argued that Keynes’ system was more general than Kalecki’s, and could be applied to both situations of perfect and imperfect competition (King 2002: 211). Money and uncertainty were fundamental to any realistic economics, and to the core of Keynes’ theory and hence Post Keynesian economics (King 2002: 212), but Kalecki did not pay sufficient attention to them.
Other fundamentalist Keynesians like Victoria Chick and Sheila Dow have had little interest in Kaleckian theory (King 2002: 212).
Secondly, Sraffian criticisms of Kaleckian economics are not well developed, though Steedman (1992) attacked Kaleckian theory and argued that they had ignored issues such as input–output relations, joint production, and aspects of mark-up pricing.
Joan Robinson had turned against Sraffian theory in the late 1970s, and preferred a Keynes-Kalecki synthesis (King 2002: 214). She also contended that the reswitching debate in the Cambridge capital controversy was ultimately “an unnecessary distraction” (King 2002: 214).
In the 1990s, a type of Keynes-Kalecki synthesis was continued. Philip Arestis’ The Post-Keynesian Approach to Economics (1992) used an approach that attempted to synthesise Keynes and Kalecki (King 2002: 216).
In the same year, Marc Lavoie’s Foundations of Post-Keynesian Economic Analysis (1992) favoured a Kaldorian and Kaleckian synthesis (King 2002: 217).
By the time of Arestis, Dunn and Sawyer’s (1999) defence of the coherence of Post Keynesian economics from Walters and Young (1997), they excluded the Sraffians from three-fold division of “broad tend” Post Keynesianism (and non-neoclassical Institutionalists had replaced the Sraffians) (King 2002: 219).
It could be argued that it is probably Sraffian theory that is the least compatible with the other strands of Post Keynesianism, and that the Sraffian theories of (1) a tendency to a uniform long-run rate of profit and (2) to long-run “natural” prices are empirically dubious and unnecessary concepts.
King (2002: 219–220) concludes that Post Keynesian economics went through a period of synthesis in the 1990s and is no less coherent than the eclectic theories within the neoclassical tradition.
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