Post Keynesians Reject the Liquidity Trap

As I have pointed out before, Keynesianism comes in 3 forms:

(1) Neoclassical synthesis Keynesians (= Old Keynesians);
(2) New Keynesians;
(3) Post Keynesians.
See “Neoclassical Synthesis Keynesianism, New Keynesianism and Post Keynesianism: A Review,” July 7, 2010.

Post Keynesian economics is what this blog advocates, and most people do not understand that Post Keynesianism rejects the neoclassical synthesis idea of the liquidity trap. In the original formulation of the concept, a liquidity trap is the existence of an infinitely elastic or a horizontal demand curve for money at some positive level of interest rates.

It should be noted that the expression “liquidity trap” is also used loosely or in a weak sense by New Keynesians like Krugman to mean that interest rates cannot fall below zero and that monetary policy can become impotent in some situations, which is perfectly true. That rather different definition of the “liquidity trap” is not objectionable. But it is the original neoclassical synthesis concept I am talking about here.

Keynes’ General Theory of Employment, Interest and Money (1936) gives us a theory of real world capitalist economies, where we have a monetary production economy, fundamental uncertainty, subjective expectations, contracts, inflexible or “sticky” wages, and money with a zero or very small elasticity of production, and money and financial assets with zero elasticity of substitution with producible commodities. But in fact Keynes did not regard the original liquidity trap idea as a real world phenomenon. Paul Davidson explains:

“…Old Keynesians claimed that, at some low, but positive, interest rate, the demand curve for speculative money balances become infinitely elastic (horizontal). This horizontal segment of the speculative demand curve was designated the liquidity trap by Old Keynesians such as Paul Samuelson and James Tobin. These mainstream Old Keynesians made the liquidity trap the hallmark of what Samuelson labeled Neoclassical Synthesis Keynesianism. If the economy is enmeshed in the liquidity trap, then Old Keynesians argued that the Monetary Authority is powerless to lower the rate of interest to stimulate the economy no matter how much the central bank exogenously increased the supply of money. This view of the impotence of monetary policy was succinctly summarized in the motto ‘you can't push on a string.’ The liquidity trap implied that monetary policy would be powerless to stimulate the economy if it fell into recession. These Old Keynesians, therefore, proclaimed that deficit spending fiscal policy was the only policy action available to pull an economy out of a recession. This faith in deficit spending as the only solution for recession became the policy theme for ‘Keynesians’, even though Keynes's speculative motive analysis denies the existence of a ‘liquidity trap’....
In the decade after the Second World War, econometricians searched in vain to demonstrate the existence of a liquidity trap (that is, a horizontal segment of the speculative demand for moment) where monetary policy could not affect the interest rate. In a stunning volte face of the history of economy thought, Milton and his followers who accept the neutrality of money as an article of faith used this failure of econometricians as an attack on Keynes’s theory. Friedman’s motto ‘Money matters’ became an anti-Keynesian weapon. This may have been an effective argument against Old Keynesians who followed Samuelson’s lead in accepting the neutral money axiom. Keynes, however, explicitly declared that in his analysis money was never neutral, that is, that money matters in both the short run and the long run in the real world” (Davidson 2002: 95).

Keynes also conceived the speculative demand for money as a rectangular hyperbola (Davidson 2002: 94–95), and we can turn to the General Theory to confirm that Keynes did not think the liquidity trap existed in the real world:

“There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. But whilst this limiting case might become practically important in future, I know of no example of it hitherto. Indeed, owing to the unwillingness of most monetary authorities to deal boldly in debts of long term, there has not been much opportunity for a test. Moreover, if such a situation were to arise, it would mean that the public authority itself could borrow through the banking system on an unlimited scale at a nominal rate of interest” (Keynes 2008 [1936]: 187).

The reason why monetary policy can be impotent and ineffective in recessions, depressions or periods of high involuntary unemployment where expectations have been shocked is that we have an economy with endogenous money, subjective expectations and shifting liquidity preference. A government can massively increase the private banks’ excess reserves by quantitative easing (QE), as seen in Japan from 2001 to 2006, and in the US and the UK from 2009, but that will not increase investment, spending or employment significantly, unless that money is injected into the economy by private debt. But it is precisely the collapse of expectations and confidence that destroys the demand for credit and the willingness of banks to extend credit. Banks may prefer to hold their excess reserves, and private individuals, households and businesses may be deleveraging (especially after an asset bubble and excessive private sector debt), and unwilling to take on new debt, while the economy is hit by debt deflation. The impotence of monetary policy in such circumstances is indeed a reality and the remedy is fiscal policy. But the neoclassical synthesis Keynesian idea of the liquidity trap is simply not needed to explain this phenomenon.

QE was a radical monetary policy justified by mainstream economics. It is the New Consensus macroeconomics, monetarism and conservative New Keynesianism that emphasises the use of monetary policy, while neglecting the role of fiscal policy. In contrast, liberal New Keynesians and Post Keynesians emphasise the role of fiscal policy and the ineffectiveness of monetary policy.


BIBLIOGRAPHY

Davidson, P. 2002. Financial Markets, Money, and the Real World, Edward Elgar, Cheltenham.

Keynes, J. M. 2008 [1936]. General Theory of Employment, Interest and Money, Atlantic Publishers, New Delhi.

Keynesianism in America in the 1940s and 1950s

I have recently seen a most peculiar Austrian argument to the effect that Keynesianism was not used after 1945 in the US, and that America pursued “austerity” measures in that era.

This bizarre claim is easily disposed of. First, the era of classic Keynesianism in the US ran from 1945 to about 1979. Neoclassical synthesis Keynesianism quickly came to dominate the US economics profession in the late 1930s and early 1940s. From the Post Keynesian perspective, however, the neoclassical Keynesians (like Paul Samuelson and Robert M. Solow) set themselves up for later theoretical problems by wedding their Keynesianism to a Neo-Walrasian neoclassical equilibrium model (see “Neoclassical Synthesis Keynesianism, New Keynesianism and Post Keynesianism: A Review”). But in these post-war years a more radical kind of Keynesianism was also developed by John Kenneth Galbraith, the American Institutionalist, and his supporters.

After WWII, the US presidency was held by the Democrat Harry S. Truman (1945–1953) and the Republican Dwight D. Eisenhower (1953–1961). Both presidents were certainly concerned with budget deficits and the threat of inflation, but both also presided over an economy that had been transformed by the New Deal. Once social security and other welfare measures had been introduced by Roosevelt and then extended by Truman, the US had a Keynesian system of automatic stabilizers which provided countercyclical fiscal policy in times of recession. It is important to stress that the US economy had an automatic fiscal mechanism that operated to counter recessions. The fact that both Truman and Eisenhower were concerned with balanced budgets was largely irrelevant given the automatic tendency for countercyclical fiscal policy to occur.

So was Keynesianism used in the US after 1945? The necessary data on the US budget in these years can be found here (as totals including both on-budget and off-budget amounts):

http://www.presidency.ucsb.edu/data/budget.php

We must remember that before 1977 the US fiscal year ran from July 1 to June 30 the next year.

The first post-WWII recession was that of February to October 1945, which was the result of the end of the war and the beginning of the conversion of the wartime US economy to a peacetime economy. The US recession of 1945 was not a normal recession in any sense of the term, and the surge in domestic demand for consumer goods which had pent up during the war lead to high private consumption and economic growth after 1945, especially after the 1945 tax cut of $6 billion passed in November. The post-war growth to 1948 was an entirely predictable development consistent with Keynesian economics.

Austrians appear to believe that the recovery that quickly began in 1945 in some way contradicts Keynesianism. Usually, they point to the fear that some Keynesians like Paul Samuelson (Samuelson 1944 and 1944a) had that the depression would return after the war.

Of course, what they don’t say is that opinion amongst Keynesians was divided, and Keynes himself predicted what would happen. In 1943, Keynes was giving a lecture at the Federal Reserve and was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes’ reply is significant:

“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem” (Colander and Landreth 1996: 202).

That Samuelson and others thought the economy would slide back into a depression after 1945 shows nothing more than that they were wrong, and Keynes was right.

The second post-WWII recession extended from November 1948 to October 1949. As can be seen in the US federal budget data, Truman’s budget surplus of 4.6% of GDP in fiscal year 1948 fell to 0.2% in fiscal year 1949, as spending went from $29.8 billion in 1948 to $38.8 billion in 1949, as automatic stabilizers kicked in. In fiscal year 1950 (July 1, 1949 to June 30 1950), the budget went into an actual deficit of 1.1% of GDP (which was also partly the result of the beginning of the Korean war in June 1950). Moreover, Congress had pushed through a tax cut in 1948, which boosted spending in 1949. What we have here is classic Keynesian countercyclical fiscal policy.

The next recession ran from 1953 to 1954, and was caused by the end of the Korean war, inventory liquidation, and lower consumer demand (Sorkin 1997: 567). The recovery was again aided by automatic stabilizers and tax cuts in 1954.

The fourth recession lasted from 1957 to 1958, and was caused by inventory liquidation, shifts in investment and consumption, and a fall in exports in 1957 (Sorkin 1997: 567). While Eisenhower continue to favour a balanced budget and saw inflation as a more important threat than unemployment (Gosling 2008: 74), US fiscal policy was again Keynesian. To deal with the recession of 1957–1958, Congress passed a stimulus package in 1958, which Eisenhower supported (Benavie 1998: 42). The US budget remained in deficit in 1958 and 1959, the result of automatic stabilizers and discretionary spending for the stimulus.

But Eisenhower and his administration accepted higher unemployment as a check on inflation, and were criticised by liberal Keynesians like Paul Samuelson and John Kenneth Galbraith for lost growth, a real GDP less than potential GDP, and unnecessarily high unemployment (Gosling 2008: 75–76).

In fact, American economic policy-makers in the post-WWII period were essentially divided into conservative Keynesians and liberal Keynesians. The economic policy-makers in the Eisenhower administration were conservative Keynesians, but after John F. Kennedy became president liberal Keynesians became more influential.

The conversion of America’s policy-makers to neoclassical synthesis Keynesianism was famously described in a Time issue of December 31, 1965 in the cover article “The Economy: We Are All Keynesians Now.” Here the introduction of Keynesianism in the 1940s and 1950s is correctly described:

“In World War II, Washington planners used Keynesian ideas to formulate their policies of deficit spending. Congress adopted the Keynesian course in 1946, when it passed the Employment Act, establishing Government responsibility to achieve ‘maximum employment, production and purchasing power.’ The act also created the Council of Economic Advisers, which for the first time brought professional economic thinking into close and constant touch with the President. Surprisingly it was Dwight Eisenhower’s not-notably-Keynesian economists who most effectively demonstrated the efficacy of Keynes’s antirecession prescriptions; to fight the slumps of 1953–54 and 1957–58, they turned to prodigious spending and huge deficits” (“The Economy: We Are All Keynesians Now,” Time, December 31, 1965).

A. L. Sorkin also sums up the nature of the recessions and countercyclical nature of fiscal policy in the period down to 1961:

“[sc. Post-war] recessions can be characterized as ‘inventory recessions,’ that is, the business-cycle contractions were the result of excessive inventory accumulation and subsequent liquidation. Tax cuts, particularly those that occurred in 1948 and 1953–54, helped to stabilize personal income and consumption spending, tending to moderate these recessions. The automatic stabilizers and accompanying federal budget deficits helped move the economy toward the recovery phase of the cycle” (Sorkin 1997: 569).

There is no doubt at all that post-WWII US policy was Keynesian.

A final point is also worth noting. The business cycle after WWII down to 1990 was rather different from the pre-1933 business cycle. Recessions in this period were not caused by the familiar 19th-century and pre-1933 pattern of bursting asset bubbles, financial crises, bank runs and debt deflation.

As Sorkin argues, downturns were mostly “inventory recessions,” a phenomenon that people in the 1950s and 1960s themselves understood (see Life, 14 April 1961).

The absence of huge and damaging asset bubbles, financial crises, and bank runs after 1945 is undoubtedly related to the superior system of financial regulation and deposit insurance that existed in this era that minimised bubbles and reckless lending.

When that effective system was transformed into one that was fundamentally dysfunctional after 1980 and, in particular, in the 1990s, with the advent of New Classical economics, monetarism, and revived neoclassical macro-theory, we saw the return of huge asset bubbles, financial crises and debt deflation as significant causes of the business cycle.


BIBLIOGRAPHY

Benavie, A. 1998. Deficit Hysteria: A Common Sense Look at America’s Rush to Balance the Budget, Praeger, Westport, Conn. and London.

Colander, D. C. and H. Landreth (eds), 1996. The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, E. Elgar, Cheltenham.

Gosling, J. J. 2008. Economics, Politics, and American Public Policy, M.E. Sharpe, Armonk, N.Y.

Samuelson, P. A. 1944. “Unemployment Ahead: (I.) A Warning to the Washington Expert,” New Republic, September 11, 297-299.

Samuelson, P. A. 1944a. “Unemployment Ahead: (II.) The Coming Economic Crisis,” New Republic, September 18, 333-335.

Sorkin, A. L. 1997. “Recessions after World War II,” in D. Glasner and T. F. Cooley (eds), Business Cycles and Depressions: An Encyclopedia, Garland Pub., New York. 566–569.

Weatherford, M. S. and L. M. McDonnell, 1985. “Macroeconomic Policy Making Beyond the Electoral Constraint,” in G. C. Edwards, S. A. Shull, N. C. Thomas (eds), The Presidency and Public Policy Making, University of Pittsburgh Press, Pittsburgh, Pa. 95–113.

Neoclassical Synthesis Keynesianism, New Keynesianism and Post Keynesianism: A Review

With the use of fiscal policy in many countries around the world during the great recession of 2008–2009, the macroeconomics of Keynesianism is now a lively topic. My blog advocates a Post Keynesian approach to economics, but Post Keynesianism is not the only Keynesian school.

In fact, there are three types of Keynesianism, and supporters and enemies of Keynesian economics should be clear about what type of Keynesianism they are talking about.

In what follows, I give a brief introduction to the three varieties of Keynesianism.

(1) The post-WWII Neoclassical Synthesis Keynesians (= Neo-Keynesians / hydraulic Keynesians / bastard Keynesians / Hicksian Keynesians).
In the aftermath of the Second World War, American economics was reformed by number of economists who were influenced by Keynes. However, partly in the environment of McCarthyism and partly through their own re-interpretation of Keynes (as well as the role of the Canadian economist Robert Bryce in spreading a flawed understanding of Keynes’ theories in the US), Paul Samuelson and Robert M. Solow diluted Keynes’s work by joining it with neoclassical economics (Davidson 2010: 247). Lorie Tarshis, the Canadian student of Keynes, had written a fairly good textbook summary of Keynes’s General Theory for American universities in the 1940s, but the book was attacked by conservatives who regarded it as inspired by communism, and in particular William F. Buckley denounced the book in his God and Man at Yale (1951). Consequently, a version of Keynesianism that used neoclassical microeconomics to justify general Keynesian macroeconomic policies was adopted as the orthodoxy in America, principally through the work of Paul Samuelson and Robert M. Solow, as well as the IS/LM model of the British neoclassical John Hicks (who worked at Oxford university). Hicks, Solow and Samuelson were influenced by neoclassical Walrasian general equilibrium theory.

Paul Samuelson coined the expression “neoclassical synthesis” to refer to the new theory that blended Keynesianism with neoclassical microeconomics. The “neoclassical synthesis Keynesians” assumed that involuntary unemployment was only due to inflexible wages and prices, and accepted the three neoclassical axioms of (1) neutral money, (2) gross substitution and (3) the ergodicity of the future, contrary to Keynes’s General Theory. Because of its departure from Keynes’s ideas, Joan Robinson labelled the neoclassical synthesis as “bastard Keynesianism” (Lodewijks 2003: 25; for the history of Keynesian policy in the US, see Turgeon 1996). This largely American version of Keynesianism was therefore open to theoretical attacks by monetarists and New Classicals in the 1970s, and today there are not many neoclassical synthesis Keynesians left.

Owing to their flawed neoclassical theory, the neoclassical synthesis Keynesians had difficulties explaining and dealing with stagflation, and were discredited in the 1970s. Many morphed into “New Keynesians,” and those who did not (e.g., James Tobin) came to be called “Old Keynesians.” Some well known neoclassical synthesis Keynesians were John R. Hicks (1904–1989), Frank Hahn, Abba P. Lerner, William J. Baumol, Franco Modigliani, Paul A. Samuelson, Robert Eisner, Walter W. Heller and Robert M. Solow. Notably, John R. Hicks actually renounced the IS-LM model (and the neoclassical synthesis) in the early 1980s and came to associate himself with the Post Keynesian school (Hicks 1980–1981).

(2) New Keynesians.
The New Keynesians emerged in the 1980s and are even further from Keynes’ theory than the neoclassical synthesis Keynesians. New Keynesians are one of the two main schools of mainstream macroeconomics today. The “new macroeconomic consensus” is essentially a mix of New Classical and New Keynesian theory, but the “Keynesianism” of the latter is so watered down that it hardly even deserves that name. In the wake of the monetarist and New Classical assault on neoclassical synthesis Keynesianism, New Keynesianism emerged by providing a more consistent neoclassical microeconomic foundation for Keynesian macroeconomics. New Keynesians are essentially neoclassicals who believe that monetary intervention is the main instrument of economic policy, although there are different strands of opinion within New Keynesian analysis, most notably that of Joseph Stiglitz (King 2002: 239). Some have recognised the usefulness of fiscal policy, but others are actually sceptical about fiscal intervention (Snowdon and Vane 2005: 364). For example, in some modern “New Keynesian” textbooks, one finds a loanable funds theory, Say’s law, opposition to budget deficits (on the grounds that they crowd out private investment and produce higher interest rates), the quantity theory of money, monetarist inflation targeting, and no discussion of aggregate demand – a complete and utter travesty of Keynes’s thinking (Lodewijks 2003: 29).

New Keynesians use rational expectations and assume that the cause of involuntary unemployment is sticky prices and wages, but also assume neutral money in the long run and Say’s law as well (King 2002: 233–239). Prominent New Keynesian include Joseph E. Stiglitz, Olivier Blanchard, John B. Taylor, David H. Romer, Christina D. Romer, Bradford DeLong, and N. Gregory Mankiw. Paul Krugman is a New Keynesian, but the question of how far he has deviated from New Keynesianism is controversial.

(3) Post Keynesians.
Post Keynesians are the true heirs to Keynes and have built upon his work. The forebears of the Post Keynesian school were the Cambridge associates and students of Keynes who rejected the neoclassical synthesis. These were Joan Robinson (1903–1983), Richard F. Kahn (1905–1989), E. Austin G. Robinson (1897-1993), and Nicholas Kaldor (1908–1986). After WWII, Cambridge Keynesianism and Post Keynesianism were influential in the UK, Canada, continental Europe, and Australia (King 2002: 141–159), but went into decline after 1980, as neoclassical economics once again became mainstream economic theory. It should be noted that both the Sraffians (or Neo-Ricardians) and Kaleckians emerged as economic schools strongly associated with Post Keynesianism after 1945. But today Post Keynesianism can be clearly defined in the “narrow tent” sense advocated by Paul Davidson, which excludes the Sraffians and Kaleckians. As Paul Davidson argues,

[sc. it is an error to include] … Sraffians as well as Kaleckians in … [the] Post Keynesian classification. Sraffians reject Keynes’s notion of the importance of uncertainty (i.e., nonergodicity) in determining the effective demand equilibrium solution. Moreover Sraffa and the Sraffians have no room for money in their analytical system. While Keynes argued that interest rates and liquidity preference were at the heart of the involuntary unemployment problem, Kalecki assumed that interest rates had no important effects on the economic system. To grant Sraffians and Kaleckians citizenship in the Post Keynesian school, therefore, assures that some “Post Keynesians” will rely on an analytical model that is logically inconsistent …. [and] Kalecki’s monetary analysis is so different from Keynes’s General Theory that Kalecki cannot be classified as a Post Keynesian (Davidson 2003–2004: 247–248).

Paul Davidson (2003-2004: 251) dates the emergence of Post Keynesianism as a distinct school to the publication of Sidney Weintraub’s book An Approach to the Theory of Income Distribution (1958). Post Keynesians emphasise Keynes’ principle of effective demand and the fundamental role that liquidity preference plays in market economies. Post Keynesians also reject the three axioms of neoclassical economics, which are as follows:

(1) the gross substitution axiom;
(2) the neutrality of money axiom, and
(3) the axiom of an ergodic economic world.

None of these axioms is correct. They are simply not an accurate description of the real world characteristics of modern capitalist economies. In reality, money is never neutral, non-reproducible financial assets are not gross substitutes for commodities, and we face a fundamentally non-ergodic future.

Post Keynesians also emphasise liquidity preference theory and its role in causing involuntary unemployment. The essence of this is that increasing demand for liquid assets (money and financial assets) will not lead to demand for goods and services. Shifts in liquidity preference can cause long-run involuntary unemployment, since, in the face of fundamental uncertainty about the future, investment in commodity production can become unstable (Barkley Rosser 2001: 560).

One of the most interesting, original and exciting developments in Post Keynesianism is neochartalism or modern monetary theory (MMT). This provides a bold and empirically-grounded theory of how our modern fiat monetary systems actually work, and, most notably, destroys the tired old analogy between private debt and government debt that is a favourite of conservatives.

Finally, it should be noted that Post Keynesianism is not mainstream economics and remains a heterodox school. Prominent Post Keynesians (living and dead) include Sidney Weintraub (1914–1983), Paul Davidson, Geoffrey C. Harcourt, Victoria Chick, Jan A. Kregel, Basil J. Moore, Sheila Dow, Thomas I. Palley, Malcolm Sawyer, Philip Arestis, Marc Lavoie, Steve Keen and Mark Hayes. Some well known neochartalists include L. Randall Wray, Bill Mitchell, and Warren Mosler.


APPENDIX 1: WAS HYMAN MINSKY A POST KEYNESIAN?

Hyman Minsky’s financial instability thesis is clearly an important insight into financial markets, and is certainly directly relevant to the crisis of 2008. Hyman Minsky undoubtedly had an affinity with the Post Keynesian school, and his work is taken very seriously in Post Keynesian economics (most notably by Steve Keen). Nevertheless, Minsky was an idiosyncratic Keynesian and the question whether he should be categorised as a Post Keynesian is debateable. Paul Davidson has argued that

Hyman Minsky is identified [sc. in King 2002: 110] as the second American Post Keynesian … Minsky attended many “Post Keynesian” summer schools in Trieste, Italy as did Kaleckians and many Sraffians who now identify themselves as neo-Ricardians. Accordingly, mere attendance at the Trieste school does not make one a Post Keynesian. Minsky often told me that he never wanted to be identified as a Post Keynesian (hence he fails King’s test of identifying oneself as a Post Keynesian). According to King, Minsky was not an advocate of incomes policies — a hallmark of Post Keynesianism in America. King states that Minsky “had no particular objection to aggregate supply-demand analysis or to a tax based incomes policy — but did not regard them as especially interesting or important” … It is hard to understand why someone who thinks that Keynes’s aggregate supply and demand analysis of the principle of effective demand is neither interesting nor important can be classified as a Post Keynesian … In reality Minsky was, and always wanted to be, a mainstream Keynesian who used the Modigliani variant of the ISLM system and whose major distinction from other mainstream Keynesians was that he possessed knowledge of actual real world financial markets. His “inherently unstable” financial fragility hypothesis … was based on his reading of the activities on financial markets during the period between the onset of the Great Depression and the beginning of the Second World War …. Since Minsky refused to adopt Keynes’s principle of effective demand as the basic analytical system, and instead adopted an analytical structure that relied on some of the restrictive axioms of the special case classical theory, it is difficult for me to understand why King classifies Minsky as a Post Keynesian much less the “second US Post Keynesian” (Davidson 2003–2004: 252–253).

Minsky, then, was closer to the neoclassical synthesis Keynesians than to the Post Keynesians. It can also be said that Abba Lerner was never really a Post Keynesian either (King 2002: 119), although his functional finance theory was very influential in the development of neochartalism (or modern monetary theory).

APPENDIX 2: THE SRAFFIANS AND KALECKIANS

I quote Davidson (2003–2004: 263–264) on the differences between the Sraffians/Kaleckians and “narrow tent” Post Keynesians:

[n]either Sraffians nor Kaleckians explicitly reject the classical axioms of ergodicity and the neutrality of money …. For example, the Sraffians reject the importance of uncertainty and hence the [non-neutral] role of money as well as Marshallian microfoundations … The Kaleckians emphasized that Keynes’s stress on uncertainty was because Keynes adopted an “atomistically competitive” model while Kalecki’s analysis is essentially oligopolistic. According to Kalecki and the Kaleckians it was the imperfections in capital markets and therefore the need to internally finance investment via retained earnings that was a significant cause of unemployment and not liquidity preference under uncertainty.

BIBLIOGRAPHY

Barkley Rosser, J. 2001. “Alternative Keynesian and Post Keynesian Perspectives on Uncertainty and Expectations,” Journal of Post Keynesian Economics 23.4: 545–566.

Davidson, P. 2002, Financial Markets, Money, and the Real World, Edward Elgar, Cheltenham, UK.

Davidson, P. 2003–2004. “Setting the Record Straight on ‘A History of Post Keynesian Economics,’” Journal of Post Keynesian Economics 26.2 245–272.

Davidson, P. 2005. “Responses to Lavoie, King, and Dow on what Post Keynesianism is and who is a Post Keynesian,” Journal of Post Keynesian Economics 27.3: 393–408.

Davidson, P. 2010. “Keynes’s Revolutionary and ‘Serious’ Monetary Theory,” in R. W. Dimand, R. A. Mundell and A. Vercelli (eds), Keynes’s General Theory after Seventy Years, Palgrave Macmillan, Basingstoke, Hampshire, UK.

Hicks, J. R. 1980–1981. “IS-LM: An Explanation”, Journal of Post Keynesian Economics 3.2: 139–154.

King, J. E. 2002. A History of Post-Keynesian Economics since 1936, Edward Elgar, Chelten

Lodewijks, J. 2003. “Bastard Keynesianism,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics, Edward Elgar Publishing, Cheltenham, UK. 24–29.

Snowdon, B. and Vane, H. R. 2005. Modern Macroeconomics: Its Origins, Development and Current State, Edward Elgar, Cheltenham.

Turgeon, L. 1996. Bastard Keynesianism: The Evolution of Economic Thinking and Policymaking since World War II, Greenwood Press, Westport, Conn.