Debunking Marxism 101 (Updated)

In the links below I update my series of posts debunking Marxist economics and ideology, to complement my series on Debunking Austrian economics 101.

As in the series on Austrian economics, not all posts actually debunk Marxism, but sometimes provide outlines or summaries of Marxist theory or interesting points on Marxism or Karl Marx’s life and thought. There are also some points where constructive things can be said: on endogenous money, the falsity of Say’s law and the monetary theory of production, how some of Marx’s economic thought anticipated Keynes, but even here the discussions in Marx’s Capital are simply obsolete and have long been superseded by modern Post Keynesian theory, and are mainly of historical interest.

In what follows, sometimes Marxist economic theory will be debunked by means of Post Keynesian economics (which is what this blog advocates), though frequently I have my own original criticisms or follow the arguments of other critics of Marxism.

It is important to remember that Post Keynesian economics – although it has severe criticisms of laissez faire capitalism and neoclassical or Austrian economics – is still strongly distinct from Marxist economics. Post Keynesian economics is not Marxism, and leading Post Keynesians and economists whose work has been foundational for Post Keynesian economics have rejected the labour theory of value, the basis of Marxist economics.

John Maynard Keynes, for example, said that Marx’s theories were founded “on a silly mistake of old Mr Ricardo’s” (Skidelsky 1992: 517) – namely, the labour theory of value. For Michał Kalecki and Joan Robinson the labour theory of value was “metaphysical” (Brus 1977: 59; Robinson 1964: 39), and for Piero Sraffa it was “a purely mystical conception” (Kurz and Salvadori 2010: 199). If the labour theory of value is unsound, then the whole Marxist edifice constructed on it cannot but fall and collapse. Moreover, the classical Marxist idea of historical determinism is also incompatible with the Post Keynesian idea of the fundamental uncertainty of the future.

For an overview of why the labour theory of value is wrong, see this post:

“Why Marx’s Labour Theory of Value is Wrong in a Nutshell,” June 28, 2015.

For a detailed discussion of how Marx and Engels continued to think of the theory of value in volume 1 of Capital as an empirical theory of pre-modern commodity exchange before modern capitalism (where prices of production are anchors for the price system), see here:

“Engels’ View of the Theory of Value in Volume 1 of Capital in the 1890s,” August 12, 2015.

The posts below are divided into the following groups:

(i) Bibliographical Posts.
(ii) Marx and Engels’ Works Online
(iii) Karl Marx’s Life 1818–1883
(iv) Documentaries about and discussions of Karl Marx and Marxism.
(v) Against the labour theory of value.
(vi) On the alleged tendency of the rate of profit to fall.
(vii) On Marx’s “Critique of the Gotha Program.”
(viii) Discussions of David Harvey’s lectures on Reading Marx’s Capital Volume 1.
(ix) Steve Keen on Marxism.
(x) On Marx’s views on phrenology and race.
(xi) On Marx’s views on slavery.
(xii) Marxism and authoritarianism.
(xiii) Against Marx’s Communist Manifesto.
(xiv) Against Sraffian and Marxist long-run equilibrium.
(xv) Chomsky and Marxism.
(xvi) Against Temporal Single System Marxism (TSSI)
(xvii) Marx’s Monetary Theory
(xviii) Marx versus Keynes
(xix) Critical Summaries of Volume 1 of Capital.

I also recommend my series of posts that are critical chapter by chapter summaries of volume 1 of Capital in section xix below.

The posts are as follows:

Debunking Marxism 101
(i) Bibliographical Posts:

(1) “Study Guides to and Overviews of Marx’s Capital,” June 10, 2015.

(2) “Bibliography on Marx’s Monetary Theory,” June 16, 2015.

(ii) Marx and Engels’ Works Online:

(1) “Some Early Editions of Marx’s Capital Online,” May 10, 2015.

(2) “Engels’ Later Works Online,” May 13, 2015.

(iii) Karl Marx’s Life 1818–1883:

(1) “Karl Marx’s Life 1818–1841,” April 20, 2015.

(2) “Karl Marx’s Life 1842–1844,” April 21, 2015.

(3) “Karl Marx’s Life 1845–1849,” April 24, 2015.

(4) “Karl Marx’s Life 1850–1860,” April 25, 2015.

(5) “Karl Marx’s Life 1861–1870,” April 28, 2015.

(6) “Karl Marx’s Life 1871–1883,” May 1, 2015.

(iv) Documentaries about and discussions of Karl Marx and Marxism:

(1) “A BBC Discussion of Karl Marx,” April 4, 2015.

(2) “Karl Marx in London,” April 26, 2015.

(3) “BBC Radio 4 Discussion on the 1848 Revolutions,” April 22, 2015.

(4) “Jonathan Sperber on Karl Marx,” April 23, 2015.

(5) “Bryan Magee interviews Peter Singer on Hegel and Marx,” April 8, 2015.

(v) Against the labour theory of value

(1) “Mysticism and the Labour Theory of Value,” May 7, 2014.

(2) “Did Kalecki Accept the Labour Theory of Value?,” April 18, 2014.

(3) “Adam Smith on the Labour Theory of Value,” April 20, 2014.

(4) “Progress in Marxism on the Labour Theory of Value?,” March 18, 2015.

(5) “Marx’s ‘Socially Necessary Labour Time’: A Quick Overview and Critique,” March 26, 2015.

(6) “Marx on the Labour Theory of Value in Volume 1 of Capital,” March 27, 2015.

(7) “Marx’s Labour Theory of Value and Rothbard’s Homesteading Property-Rights Theory: Peas in a Pod,” March 28, 2015.

(8) “The Foundation of Marx’s Labour Theory of Value in Ricardo,” March 29, 2015.

(9) “More Mystical Labour Theory of Value Nonsense,” March 29, 2015.

(10) “The Two Epistemological Ways to Interpret the Labour Theory of Value,” March 30, 2015.

(11) “Piero Sraffa’s Damning Verdict on the Labour Theory of Value,” March 30, 2015.

(12) “Kliman’s Explanation of Marx’s Labour Theory of Value,” March 31, 2015.

(13) “Philip Pilkington on the Labour Theory of Value,” April 1, 2015.

(14) “The Labour Theory of Value and Animal Labour,” April 1, 2015.

(15) “Achille Loria and Alexander Gray on Marx’s Labour Theory of Value,” April 2, 2015.

(16) “Matias Vernengo on Marx’s Labour Theory of Value,” April 3, 2015.

(17) “My ‘Sun Theory of Value’: Why it’s better than the Marxist Labour Theory of Value,” April 5, 2015.

(18) “Achille Loria on the Contradiction in Marx’s Labour Theory of Value,” April 7, 2015.

(19) “Marx’s Wage-Labour and Capital,” April 9, 2015.

(20) “Dühring’s Review of Capital and Marx’s Letter to Engels of 8 January, 1868 on the Labour Theory of Value,” May 12, 2015.

(21) “Marx’s Abstract Socially-Necessary Labour Time in A Contribution to the Critique of Political Economy and Capital,”

(22) “Marx on Labour Value and Cost Price in the Grundrisse,” May 7, 2015.

(23) “Engels’ Letter to Werner Sombart on the Labour Theory of Value in 1895,” May 14, 2015.

(24) “What the Labour Theory of Value does not Explain,” May 15, 2015.

(25) “What Conditions are Necessary for Commodity Prices to Equal Marx’s Labour Value?,” May 17, 2015.

(26) “A Devastating Contradiction in Marx’s Argument for the Labour Theory of Value,” May 19, 2015.

(27) “Wicksteed on the Contradiction in Chapter 1 of Volume 1 of Capital on the Labour Theory of Value,” May 21, 2015.

(28) “Karl Popper on the Labour Theory of Value,” May 30, 2015.

(29) “Fiat Money Destroys the Labour Theory of Value,” June 6, 2015.

(30) “Why Marx’s Labour Theory of Value is Wrong in a Nutshell,” June 28, 2015.

(31) “Eugen von Böhm-Bawerk’s Critique of Marx: A Quick Summary,” August 6, 2015.

(32) “Two Important Instances in Volume 1 of Marx’s Capital where Labour Values determine individual Commodity Prices,” August 7, 2015.

(33) “Two Instances where Marx’s Theory of Value in Volume 3 Intrudes into Volume 1 of Capital,” August 8, 2015.

(34) “Joan Robinson on Marx’s Labour Theory of Value: A Few Points,” August 11, 2015.

(35) “Engels’ View of the Theory of Value in Volume 1 of Capital in the 1890s,” August 12, 2015.

(vi) On the alleged tendency of the rate of profit to fall:

(1) “Michael Heinrich on the Tendency of the Profit Rate to Fall and Engels’ Dubious Editing of Marx,” April 4, 2015.

(vii) On Marx’s “Critique of the Gotha Program”:

(1) “Marx’s ‘Critique of the Gotha Program’: Four Points,” April 29, 2015

(viii) Discussions of David Harvey’s lectures on Reading Marx’s Capital Volume 1:

(1) “David Harvey on Reading Marx’s Capital Volume 1, Class 01,” April 8, 2015.

(2) “David Harvey on Reading Marx’s Capital, Volume 1, Class 02 (Updated),” June 30, 2015.

(3) “David Harvey on Reading Marx’s Capital Volume 1, Class 03,” July 3, 2015.

(4) “David Harvey on Reading Marx’s Capital, Volume 1, Class 04,” July 19, 2015.

(ix) Steve Keen on Marxism:

(1) “Steve Keen’s ‘A Marx for Post Keynesians,’” April 6, 2015.

(x) On Marx’s views on phrenology and race:

(1) “Marx’s Phrenology and Racial Views,” April 26, 2015.

(xi) On Marx’s views on slavery:

(1) “Marx on Slavery in his 1846 Letter to Annenkov,” April 27, 2015.

(2) “Marx on Slaves as Fixed Capital,” July 16, 2015.

(3) “Marx on Slave-based Plantation Systems,” July 18, 2015.

(xii) Marxism and authoritarianism:

(1) “Engels on Authoritarianism and Revolution,” April 30, 2015.

(xiii) Against Marx’s Communist Manifesto:

(1) “What Economic System did Marx and Engels Advocate?,” July 24, 2012.

(xiv) Against Sraffian and Marxist long-run equilibrium:

(1) “Sraffians versus Kaleckians versus Fundamentalist Post Keynesians,” June 17, 2014.

(2) “Matias Vernengo on Marx’s Labour Theory of Value,” April 3, 2015.

(3) “Sraffian Long-Run Equilibrium Prices of Production and Post Keynesianism,” April 11, 2015.

(xv) Chomsky on Marxism:

(1) “Chomsky on Marxism,” July 12, 2015.

(xvi) Against Temporal Single System Marxism (TSSI):

(1) “Mongiovi on Temporal Single System Marxism,” May 16, 2015.

(2) “Nitzan and Bichler on the Temporal Single System Interpretation (TSSI),” June 3, 2015.

(xvii) Marx’s Monetary Theory:

(1) “Marx on the Necessity of Money being a Commodity,” June 8, 2015.

(xviii) Marx versus Keynes:

(1) “Keynes versus Engels on ‘Socialism,’” May 5, 2015.

(xix) Critical Summaries of Volume 1 of Capital:

(1) “Prolegomena to the Study of Marx’s Capital (Updated),” June 2, 2015.

(2) “Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 1 (Updated),” June 21, 2015.

(3) “Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 2,” June 26, 2015.

(4) “Marx’s Capital, Volume 1, Chapter 2: A Critical Summary,” June 4, 2015.

(5) “Marx’s Capital, Volume 1, Chapter 3: A Critical Summary,” June 12, 2015.

(6) “Marx’s Capital, Volume 1, Chapter 4: A Critical Summary,” July 4, 2015.

(7) “Marx’s Capital, Volume 1, Chapter 5: A Critical Summary,” July 6, 2015.

(8) “Marx’s Capital, Volume 1, Chapter 6: A Critical Summary,” July 13, 2015.

(9) “Marx’s Capital, Volume 1, Chapter 7: A Critical Summary,” July 31, 2015.

(10) “Marx’s Capital, Volume 1, Chapter 8: A Critical Summary,” August 2, 2015.

BIBLIOGRAPHY
Brus, Włodzimierz. 1977. “Kalecki’s Economics of Socialism,” Oxford Bulletin of Economics and Statistics 39.1 (February): 57–67.

Kurz, Heinz D. and Neri Salvadori. 2010. “Sraffa and the Labour Theory of Value: A Few Observations,” in John Vint et al. (eds.), Economic Theory and Economic Thought: Essays in Honour of Ian Steedman. Routledge, London and New York. 189–215.

Robinson, Joan. 1964. Economic Philosophy. Penguin, Harmondsworth.

Skidelsky, R. J. A. 1992. John Maynard Keynes: The Economist as Saviour, 1920–1937 (vol. 2), Macmillan, London.

Steve Keen on Equilibrium Theory as a Bad Habit

This is a talk Steve Keen recently gave at Cartanega University in Colombia on the flaws of equilibrium modelling in neoclassical economics.

Sraffian Long-Run Equilibrium Prices of Production and Post Keynesianism

I find this whole issue to be very interesting because it seems clear to me that Sraffian long-run equilibrium prices (on which, see Brinkman 1999: 44) are fundamentally the same concept as Marx’s “average prices” or long-run “prices of production” (for this concept in Marx, see Fred Moseley’s excellent paper “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices”), which in turn are the same concept as Ricardo’s long-run “prices of production” or “natural prices”. In all cases these are long-run equilibrium prices based on cost of production and a uniform rate of profit and they are anchors or centres of gravity for the price system around which prices fluctuate.

Now a starting point on this subject is the relation of Sraffianism to Post Keynesian economics.

I quote John King below who argues that Sraffian economics is today no longer even considered part of “broad tent” Post Keynesianism:

“Almost no one today regards ‘Post Keynesian-Sraffian’ economics as a single coherent school of thought (an exception is Luigi Pasinetti, 2007). By the end of the last century the Sraffians had been expelled (or, perhaps, had expelled themselves) from the Post Keynesian tradition, and in 2012 it is not at all clear whether the classical surplus approach to political economy (as its few remaining practitioners prefer it to be known) will long survive the retirement of the first post-Sraffa generation of theorists like Heinz Kurz and Neri Salvadori.” (King 2012: 314).

We can also note that Pratten (1996: 439), Arestis, Dunn and Sawyer (1999), Dunn (2000: 350), Minsky (1985; 1990) and Mongiovi (2003: 218) seem to agree with this assessment.

One of the most serious points of disagreements, so it would appear, is nothing less than the empirical relevance of Sraffian long-run equilibrium prices:

“The main characteristic of Sraffian economics relevant here is the use of long-period analysis where there would be an equalization of the rates of profit and full capacity utilization in the long period. The assumption that there are persistent forces that drive the economy toward a normal or long-period position when the world is characterized by uncertainties, nominal contracts, and path dependency sits rather uncomfortably with the general thrust of Post Keynesian economics” (Arestis, Dunn and Sawyer 1999: 544).

Lavoie (2010: 11) is even more explicit: he states that Sraffian long-period equilibrium and long-run equilibrium prices are “the cause of all the troubles” (Lavoie 2010: 12) between Sraffians and Post Keynesians.

Although some dissident Sraffians, Lavoie notes, have given up this long period equilibrium obsession (Lavoie 2010: 23, citing Roncaglia 1995: 120), it is the Marxian Sraffians following Garegnani who appear to be most extreme in their defence of the Classical view that competition really brings about a tendency towards a uniform rate of profit in capitalism, and that long-period prices of production are centres of gravity for market prices (Lavoie 2010: 14).

Many Post Keynesians reject Sraffian long-period equilibrium prices and the tendency to such equilibrium (see Lavoie 2014: 176), because of

(1) Joan Robinson’s arguments against long-run equilibrium positions (Robinson 1978a and 1978b; 1979: 179–180);

(2) the role of fundamental uncertainty in economic life,

(3) the severe barriers to entry that exist in real world capitalist economies (including aggressive use of capacity utilisation as a barrier to entry), and

(4) the significant, persistent differences in profit mark-ups in different sectors and industries.

On (4) one can refer to the work of the late Frederic S. Lee (Lee 1994: 325–327; Lee 1998: 226, n. 17; Lee and Jo 2011: 868–869).

He argued that the rate of profit mark-up in each industry and business will be determined by many factors such as custom, convention, different desires and needs for various profit rates, different levels of competition, and what mark-up the market will bear, etc., and these factors will themselves vary in different times and places (Lee 1994: 325–326). Consequently the Marxist and Sraffian notion of a real world tendency in capitalism to long-run prices of production with a uniform rate of profit is untenable (Lee 1994: 326–327).

So therefore what rational reason is there to believe in such a long-run tendency as an empirical reality if it is never observed and countervailing forces always thwart it in the short run? And advocates of the alleged long-run tendency to a uniform profit rate cannot evoke the analogy of gravity here, because – while the evidence for a force called gravity is overwhelming – they have not even proven that their long-run tendency actually exists. They cannot move to analogies from the natural sciences until they can demonstrate that long-period equilibrium prices really are a force as well supported as gravity. But they have not done so, and there is much empirical evidence against it. So the alleged long-run tendency seems to reduce merely to an unrealistic assumption in an overly analytic, abstract model set in logical time (Lee and Jo 2011: 868–869), where ultimately it can only be assumed by definition to be true.

So, all in all, if most Post Keynesians reject Sraffian long-run equilibrium prices, then logically they should reject Marx’s long-run equilibrium prices of production too.

Further Reading
“Matias Vernengo on Marx’s Labour Theory of Value,” April 3, 2015.

“Lavoie on ‘Should Sraffian Economics be dropped out of the Post-Keynesian School?,’” June 19, 2014.

“Sraffians versus Kaleckians versus Fundamentalist Post Keynesians,” June 17, 2014.

BIBLIOGRAPHY
Arestis, Philip, Dunn, Stephen P. and Malcolm Sawyer. 1999. “Post Keynesian Economics and its Critics,” Journal of Post Keynesian Economics 21.4: 527–549.

Brinkman, Henk-Jan. 1999. Explaining Prices in the Global Economy: A Post-Keynesian Model. E. Elgar, Cheltenham, UK and Northampton, MA.

Dunn, S. P. 2000. “Wither Post Keynesianism?,” Journal of Post Keynesian Economics 22.3: 343–364.

King, J. E. 2012. “Post Keynesians and Others,” Review of Political Economy 24.2: 305–319.

Lavoie, Marc. 2010. “Should Sraffian economics be dropped out of the Post-Keynesian School?,” Paper prepared for the Conference at the University of Roma Tre, 2–4 December.
http://host.uniroma3.it/eventi/sraffaconference2010/abstracts/pp_lavoie.pdf

Lavoie, Marc. 2014. Post-Keynesian Economics: New Foundations. Edward Elgar, Cheltenham.

Lee, Frederic S. 1994. “From Post-Keynesian to Historical Price Theory, Part I: Facts, Theory and Empirically Grounded Pricing Model,” Review of Political Economy 6.3: 303–336.

Lee, Frederic S. 1998. Post Keynesian Price Theory. Cambridge University Press, Cambridge and New York.

Lee, Frederic S. and Tae-Hee Jo. 2011. “Social Surplus Approach and Heterodox Economics,” Journal of Economic Issues 45.4: 857–875.

Minsky, Hyman. 1985. “Sraffa and Keynes: Effective Demand in the Long Run,” Hyman P. Minsky Archive, Paper 321
http://digitalcommons.bard.edu/hm_archive/321/

Minsky, H. P. 1990. “Sraffa and Keynes: Effective Demand in the Long Run,” in Krishna Bharadwaj and Bertram Schefold (eds.), Essays on Piero Sraffa: Critical Perspectives on the Revival of Classical Theory. Unwin Hyman, London. 362–371.

Mongiovi, G. 2003. “Sraffian Economics,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics. Edward Elgar, Cheltenham. 318–322.

Moseley, Fred. “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices”
http://www.mtholyoke.edu/~fmoseley/lrcgpric.html

Pratten, S. 1996. “The Closure Assumption as a First Step: Neo-Ricardian Economics and Post-Keynesianism,” Review of Social Economy 54.4: 423–443.

Robinson, Joan. V. 1978a. “A Lecture delivered at Oxford by a Cambridge Economist,” in J. V. Robinson, Contributions to Modern Economics. Blackwell, Oxford.

Robinson, Joan. V. 1978b. “History versus Equilibrium,” in J. V. Robinson, Contributions to Modern Economics. Blackwell, Oxford. 126–136.

Robinson, J. 1979. “Garegnani on Effective Demand,” Cambridge Journal of Economics 3: 179–180.

Roncaglia, A. 1995. “On the Compatibility between Keynes’s and Sraffa’s Viewpoints on Output Levels,” in G. C. Harcourt, A. Roncaglia and R. Rowley (eds.), Income and Employment in Theory and Practice. St. Martin’s Press, New York. 111–125.

Watch as Robert Murphy’s Analysis of Martin Wolf Implodes before Your Very Eyes

Robert P. Murphy makes a curious set of assertions here:

Robert P. Murphy, “Martin Wolf, Closet Austrian,” Free Advice, 11 November, 2014.

Robert P. Murphy, “Martin Wolf Unwittingly Confirms Austrian Business Cycle Theory,” Mises Canada, November 11th, 2014.

In essence, Robert Murphy reproduces a quotation from a column by Martin Wolf, the British journalist and chief economics commentator at the Financial Times.

In his Mises Canada post, Murphy makes the astonishing claim that Martin Wolf is using an analysis of the causes of business cycles that is “thoroughly Austrian”:

“Now to be sure, Wolf is still a Keynesian in his prescriptions: he wants more monetary and fiscal stimulus. But my point with this post is to show that his diagnosis is thoroughly Austrian. Guys like Larry Summers and (yikes!) Paul Krugman, with their “secular stagnation” hypothesis, are also coming around to the view that Western economies have been bouncing from bubble to bubble, fueled by central bank policies.

At this point, more and more economists and analysts agree on the causes of our problems. Now we’re just disagreeing on the solutions. This is actually progress.”
Robert P. Murphy, “Martin Wolf Unwittingly Confirms Austrian Business Cycle Theory,” Free Advice, November 11th, 2014.

Unfortunately, Martin Wolf’s analysis is not “thoroughly Austrian,” nor are “more and more economists and analysts” agreeing with the Austrians about the causes of the current crisis or business cycles in general. The very idea is absurd. You can see for yourself how the whole substance of Murphy’s post unravels in the comments section of his blog as I point out various inconvenient facts, which I elaborate on below.

Neither in the article in question nor in the rest of his writings does Wolf endorse the Austrian business cycle theory (ABCT). The most positive thing that Wolf has ever said about the ABCT (to my knowledge) was on his Financial Times blog, where he stated that he had “sympathy with” some of the ideas in the ABCT but ultimately rejected it (see Wolf 2010). Clearly, Wolf is not saying banks or a central bank are driving a money rate below the natural rate of interest, and thereby inducing an “unsustainable” lengthening of the capital structure. Wolf is pointing to poorly regulated financial markets and asset bubbles as a driving, destabilising force of modern business cycles, as well as debt deflation and debt overhang in the bust and aftermath, but these things never had a fundamental role in the classic ABCT writings of Mises, Hayek or Rothbard.

Martin Wolf actually takes a maverick heterodox Keynesian/Post Keynesian explanation of the crisis, and even invokes Hyman Minsky’s theories in his writings. In fact, in Martin Wolf’s recent book The Shifts and the Shocks: What We’ve Learned – and Have Still to Learn – from the Financial Crisis (Wolf 2014) Wolf commits himself partly to a Post Keynesian analysis, and explicitly endorses Hyman Minsky’s theories (unfortunately he also endorses the global savings glut thesis, which is not generally endorsed by Post Keynesians).

Right in the preface of his book, Wolf notes that there is a superficial similarity between Austrian and Post Keynesian analyses, but profound differences in their explanations of both the causes of and solutions to the crisis (Wolf 2014: xvii).

It didn’t take long for “Major_Freedom” – the most stupid and ignorant commentator on Murphy’s blog – to defend him with a typically desperate and absurd explanation:

“Murphy’s only argument, which is valid and you have not at all refuted or even challenged in your accusations, retractions and rescues, is that the section Murphy quoted, which is a largely self-contained argument, is indistinguishable from textbook, traditional ABCT.”
http://consultingbyrpm.com/blog/2014/11/martin-wolf-closet-austrian.html#comment-1260131

At first I didn’t think Murphy would actually sink so low as to defend himself in these terms, but – lo and behold! – it seems I overestimated him.

In his subsequent explanation of his purpose in the post in the comments on his blog, Murphy uses that defence:

“You’re right ... [Major_Freedom], my point was that Wolf was indistinguishable from Austrians in his diagnosis, in that column.”
http://consultingbyrpm.com/blog/2014/11/martin-wolf-closet-austrian.html#comment-1260153

Actually, Martin Wolf’s analysis in his original column is not “indistinguishable from Austrians” at all: it is mostly concerned with the macroeconomic effects of deleveraging and the debt overhang since 2008, and argues that many nations need to bring down private debt levels, reform and recapitalise banks, and implement strong fiscal stimulus.

All one can say to defend Murphy’s position is that only if we

(1) cite a selective quotation from Wolf, and

(2) take the quotation out of context, and

(3) ignore Wolf’s actual beliefs and all his other writings on the causes of business cycles,

then we can just pretend that Martin Wolf’s explanation of the current crisis is “thoroughly Austrian.”

This just stinks of a lazy unwillingness to actually engage with what Wolf or heterodox Keynesians actually think. If you can selectively quote your opponents and ignore what your opponents actually think, then you can pretend that your opponents agree with you. But it is a tactic that is profoundly intellectually dishonest.

BIBLIOGRAPHY
Wolf, Martin. “Does Austrian Economics understand Financial Crises better than other Schools of Thought?,” Martin Wolf’s Exchange, April 1, 2010
http://blogs.ft.com/martin-wolf-exchange/2010/04/01/hello-world/

Wolf, Martin. 2014. The Shifts and the Shocks: What We’ve Learned – and Have Still to Learn – from the Financial Crisis. Penguin Press, New York.

Lavoie on “Should Sraffian Economics be dropped out of the Post-Keynesian School?”

This excellent paper by Marc Lavoie can be read here:

Marc Lavoie, “Should Sraffian Economics be dropped out of the Post-Keynesian School?,” Paper prepared for the Conference at the University of Roma Tre, 2–4 December 2010.

This subject is particularly interesting because many Post Keynesians have come to the view that Sraffian economics should not be part of “broad tent” Post Keynesianism, as noted by John King writing in 2012:

“Almost no one today regards ‘Post Keynesian-Sraffian’ economics as a single coherent school of thought (an exception is Luigi Pasinetti, 2007). By the end of the last century the Sraffians had been expelled (or, perhaps, had expelled themselves) from the Post Keynesian tradition, and in 2012 it is not at all clear whether the classical surplus approach to political economy (as its few remaining practitioners prefer it to be known) will long survive the retirement of the first post-Sraffa generation of theorists like Heinz Kurz and Neri Salvadori.” (King 2012: 314).

Pratten (1996: 439), Arestis, Dunn and Sawyer (1999), Dunn (2000: 350), and Mongiovi (2003: 218) seem to agree with this assessment.

Even though Lavoie himself says that the “project to build a fruitful alternative to neoclassical economics that would be based on a synthesis of the Keynesian monetary production economy and the Sraffian surplus approach is dead” (Lavoie 2010: 9), he still argues that Sraffians should not be expelled from “broad tent” Post Keynesianism (Lavoie 2010: 1), but nevertheless others disagree and even Lavoie himself sees problematic issues with certain aspects of Sraffian economics.

First, Lavoie (2010: 2) notes that Roncaglia (1991) identified three subgroups of Sraffians, as follows:

(1) the Marxian Sraffians, such as Pierangelo Garegnani (1930–2011) and John Eatwell;

(2) the Ricardian Sraffians, such as Luigi Pasinetti, and

(3) the Smithian Sraffians, such as Paolo Sylos Labini (1920–2005) and Alessandro Roncaglia.

Debates between the Marxian Sraffians and the Fundamentalist Keynesians were a major source of conflict at the Post Keynesian Trieste summer schools and conferences that were held between 1981 and 1990 (Lavoie 2010: 2), and even to the point of thwarting any synthesis between the various strands of “broad tent” Post Keynesianism, according to some observers (King 2002: 158).

The conflict centred on both methodological issues and Sraffian economic theory and its alleged deficiencies.

Pratten (1996) argued that Sraffian economics was a closed-system model and hence incompatible with the open-systems Post Keynesian approach (Lavoie 2010: 6).

Many Post Keynesians have also found the Sraffian fixation on long period equilibrium positions as a “centre of gravitation” towards which the economy moves as unacceptable, as Arestis, Dunn and Sawyer point out:

“The main characteristic of Sraffian economics relevant here is the use of long-period analysis where there would be an equalization of the rates of profit and full capacity utilization in the long period. The assumption that there are persistent forces that drive the economy toward a normal or long-period position when the world is characterized by uncertainties, nominal contracts, and path dependency sits rather uncomfortably with the general thrust of Post Keynesian economics” (Arestis, Dunn and Sawyer 1999: 544).

Many Kaleckians and fundamentalist Post Keynesians reject any tendency to Sraffian long-period equilibrium as empirically irrelevant for a real world economy (Arestis, Dunn and Sawyer 1999: 545).

Lavoie (2010: 10), however, points to the historical association of Sraffianism with Post Keynesian economics through the Cambridge capital controversies and a common preference for government intervention.

But differences also exist:

“Sraffians and Post Keynesians seem to disagree most about the fatal flaws of mainstream theory. For Sraffians the flaws of neoclassical theory are mostly due to their adoption of continuous downward demand curves for investment or for labour, based on diminishing marginal productivity. All Sraffians (Eatwell, Garegnani, Kurz, Mongiovi, etc.) complain of Keynes because he kept an excess baggage of neoclassical theory, a complaint even made by Herbert Simon (1997, p. 14). For several other post-Keynesians, the flaws are to be found in the neoclassical school’s avoidance of fundamental uncertainty, the instability of expectations, and the nonneutrality of money.” (Lavoie 2010: 12).

Furthermore, even Lavoie (2010: 11) admits that Sraffian long-period equilibrium remains a contentious issue, and indeed refers to this as “the cause of all the troubles” (Lavoie 2010: 12).

Marxian Sraffians following Garegnani appear to think that competition really brings about a tendency towards a uniform rate of profit in capitalism, and that long-period prices of production are centres of gravity for market prices (Lavoie 2010: 14).

But Lavoie (2010: 16) argues that “dissident” Sraffian strands are compatible with Post Keynesianism, that some Sraffian positions have been caricatured by their opponents (Lavoie 2010: 19–21), and that some modern Sraffians have given up the more extreme positions on long run equilibrium (Lavoie 2010: 23, citing Roncaglia 1995: 120).

For Lavoie (2010: 17), the “conception of production prices … is, in my view, the only remaining obstacle in the attempt to integrate Sraffian and Keynesian analyses.”

Lavoie’s conclusions are worth quoting at length:

“One of the lessons of the present study is that the interpretation of Sraffa’s outputs as actual normal outputs has already been given up by all strands of the Sraffian school. There is no clash here between Sraffians and post-Keynesians: they all recognize that both in the short and in the long period, rates of capacity utilization are likely to be different from their normal level. Even more surprising, many Sraffians accept the possibility of path dependence, a characteristic which other post-Keynesians take to heart as it exemplifies Joan Robinson’s historical time and the presence of radical uncertainty.

What is instead at stake is whether dominant Sraffians are ready to give up the concept of the gravitation towards production prices. This in my view is the crucial issue, as recognized earlier by Frederic Lee, who, despite his sympathies with Sraffian economics and the surplus approach as well as his belief in a ‘Post Keynesian-Sraffian tradition’, rejects the notion of prices of production as centres of gravity (King 1995, p. 195), even concluding some years later that ‘with the long period method problematical, it appears that the Sraffian social surplus approach is a dead end’ (Lee and Jo 2010, p. 21). Arestis, who explicitly supports the position taken by Roncaglia that was stated at the beginning of this conclusion, is just as anxious, claiming that ‘once we have got rid of long-run centres of gravity, we may be able to demonstrate that Sraffian and Post Keynesian economics have much in common’ (King 1995, p. 205).

I would argue that due to specialization and the outpour of literature, Sraffian and other post-Keynesian economists have grown somewhat apart since the 1990s. However, all strands of post-Keynesian economics, when dealing with similar issues, have converged towards each other. … Thus efforts to provide a synthesis of the various strands of post-Keynesian economics ought to be maintained and should keep track of Sraffian economics.” (Lavoie 2010: 23–24).

BIBLIOGRAPHY
Arestis, P. 1996. “Post-Keynesian Economics: Towards Coherence,” Cambridge journal of Economics 20.1: 111–135.

Arestis, Philip, Dunn, Stephen P. and Malcolm Sawyer. 1999. “Post Keynesian Economics and its Critics,” Journal of Post Keynesian Economics 21.4: 527–549.

Dunn, S. P. 2000. “Wither Post Keynesianism?,” Journal of Post Keynesian Economics 22.3: 343–364.

Harcourt, G. C. 2001. “Post-Keynesian Thought,” in G. C. Harcourt, 50 Years a Keynesian and Other Essays. Palgrave, London. 263–285.

King, J. E. 1994. Conversations with Post Keynesians. Macmillan, Basingstoke.

King, J. E. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

King, J. E. 2012. “Post Keynesians and Others,” Review of Political Economy 24.2: 305–319.

Lavoie, Marc. 2010. “Should Sraffian economics be dropped out of the Post-Keynesian School?,” Paper prepared for the Conference at the University of Roma Tre, 2–4 December.
http://host.uniroma3.it/eventi/sraffaconference2010/abstracts/pp_lavoie.pdf

Mongiovi, G. 2003. “Sraffian Economics,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics. Edward Elgar, Cheltenham. 318–322.

Pratten, S. 1996. “The Closure Assumption as a First Step: Neo-Ricardian Economics and Post-Keynesianism,” Review of Social Economy 54.4: 423–443.

Roncaglia, A. 1991. “The Sraffian Schools,” Review of Political Economy 3.2: 187–220.

Roncaglia, A. 1995. “On the Compatibility between Keynes’s and Sraffa’s Viewpoints on Output Levels,” in G. C. Harcourt, A. Roncaglia and R. Rowley (eds.), Income and Employment in Theory and Practice. St. Martin’s Press, New York. 111–125.

Sraffians versus Kaleckians versus Fundamentalist Post Keynesians

Chapter 10 of John King’s A History of Post Keynesian Economics since 1936 (2002) looks at the disputes between Sraffians, Kaleckians and fundamentalist Post Keynesians – or between the various subgroups of “broad tent” Post Keynesianism as defined by Hamouda and Harcourt in 1988.

A review of this chapter follows:

(1) Sraffians and Kaleckians versus Fundamentalist Keynesians
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, and

(2) the second, via Keynes, which uses liquidity preference and rejects neoclassical monetary theory.

Garegnani 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).

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.

So what is the state of the debate today?

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.

BIBLIOGRAPHY
Arestis, Philip. 1992. The Post-Keynesian Approach to Economics: An Alternative Analysis of Economic Theory and Policy. Edward Elgar Publishing, Aldershot, Hants, England.

Arestis, Philip, Dunn, Stephen P. and Malcolm Sawyer. 1999. “Post Keynesian Economics and its Critics,” Journal of Post Keynesian Economics 21.4: 527–549.

Eatwell, John. 1983. “The Long-Period Theory of Employment,” Cambridge Journal of Economics 7.3–4: 269–285.

Garegnani, P. 1983. “Two Routes to Effective Demand: Comment on Kregel,” in J. A. Kregel (ed.), Distribution, Effective Demand and International Relations. Macmillan, London. 69–80.

Halevi, Joseph and Kriesler, Peter. 1991. “Kalecki, Classical Economics and the Surplus Approach,” Review of Political Economy 3.1: 79–92.

King, J. E. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Kriesler, Peter. 1992. “Answers for Steedman,” Review of Political Economy 4.2: 163–170.

Lavoie, Marc. 1992. Foundations of Post-Keynesian Economic Analysis. Edward Elgar Publishing, Aldershot, UK.

Mainwaring, Lynn. 1992. “Steedman’s Critique: A Tentative Response from a Kaleckian,” Review of Political Economy 4:2: 171–177.

Minsky, H. P. 1990. “Sraffa and Keynes: Effective Demand in the Long Run,” in Krishna Bharadwaj and Bertram Schefold (eds.), Essays on Piero Sraffa: Critical Perspectives on the Revival of Classical Theory. Unwin Hyman, London. 362–371.

Robinson, J. 1979. “Garegnani on Effective Demand,” Cambridge Journal of Economics 3: 179–180.

Sawyer, Malcolm C. 1987. “Towards a post-Kaleckian Macroeconomics,” in Philip Arestis and Thomas Skouras (eds.), Post-Keynesian Economic Theory: A Challenge to Neo-classical Economics. Wheatsheaf Books, Brighton. 146–179.

Sawyer, Malcolm C. 1992. “Questions for Kaleckians: A Response,” Review of Political Economy 4.2: 152–162.

Steedman, Ian. 1992. “Questions for Kaleckians,” Review of Political Economy 4.2: 125–151.

Steindl, J. 1993. “Steedman versus Kalecki,” Review of Political Economy 5:1: 119–124.

Walters, B. and D. Young. 1997. “On the Coherence of Post-Keynesian Economics,” Scottish Journal of Political Economy 44.3: 329–349.

M. E. Brady’s Critique of Post Keynesianism

As far as I can see the major criticisms are these:

(1) Post Keynesians (and philosophers of probability, mathematicians and economists generally) have not understood Keynes’s Treatise on Probability properly, and in particular his idea of relegating the frequentist interpretation of probability to a highly limited domain, and that non-objective probabilities (in the sense of non-a priori probabilities or non-relative frequency probabilities) can nevertheless be mathematically represented with imprecise, interval estimates (apparently called “approximation” by Keynes), the first explicit such interval estimate, lower-upper bound model of probability, developed from George Boole’s calculus in The Laws of Thought (1854).

This forms the basis of Keynes’s decision-making theory, with mathematics behind it, superior to the Ramsey/Savage/neoclassical EUT and consistent with Daniel Ellsberg’s decision making theory.

(2) Brady contends that Post Keynesians misunderstand Keynes’s conception of uncertainty, and do not recognise grades/degrees of uncertainty:

“Paul Davidson assumes that Keynes’s and Shackle’s views are the same. The Post Keynesians DO NOT accept the concept of uncertainty coming in different grades or gradations. They fall back on Shackle’s own words … – Uncertainty is the opposite of certainty. … There is nothing in between certainty and uncertainty. This, of course, leads to complete nihilism. The Post Keynesian school is doomed intellectually because it does not have a solid foundation to deal with uncertainty as a range. Radical uncertainty only has import in decisions involving innovation/long run capital investment. Any attempt to put it at the center of decision making leads to intellectual chaos.”
Michael Emmett Brady, April 21, 2008
http://www.amazon.com/review/R1S4VWTIJF8J6O/

(3) the charge that Post Keynesians have mistakenly held that Keynes had no or little formal mathematical analysis in the General Theory or that Keynes had “no microeconomic foundation in the ... General Theory to support his D-Z model of Effective Demand because he had not taken the 20 minutes necessary to study the theory of value.” According to this view, the theory of effective demand in the General Theory is “completely worked out in detail in chapters 20 and 21 using the D-Z model.”

That is, Brady contends that Paul Davidson’s interpretation and version of Keynes’s D-Z model is wrong, and that Post Keynesians have not properly understood Chapters 20 and 21 of the General Theory and that Keynes had a sophisticated mathematical model in those chapters.

While charge (1) is probably true, I think it is clear that charge (2) is false: there are Post Keynesians who do recognise degrees of uncertainty, such as, for example, Dow (1994 and 1995), Jespersen (2009: 8), Lars Syll, and (if he self-identifies as a Post Keynesian) Crocco (2002).

But I would like to see someone respond to charge (3).

BIBLIOGRAPHY
Crocco, M. 2002. “The Concept of Degrees of Uncertainty in Keynes, Shackle, and Davidson,” Nova Economia 12.2: 11–28.

Dow, Sheila C. 1994. “Uncertainty,” in Philip Arestis and Malcolm Sawyer (eds.), The Elgar Companion to Radical Political Economy. Edward Elgar, Aldershot. 434–438.

Dow, Sheila C. 1995. “Uncertainty about Uncertainty,” in S. C. Dow and J. Hillard (eds.). Keynes, Knowledge and Uncertainty. Edward Elgar, Aldershot. 117–127.

Jespersen, Jesper. 2009. “Post-Keynesian Economics: Uncertainty, Effective Demand & (Un)sustainable Development,” Paper, Dijon-conference, Dijon, 10–12 December 2009.

Probability and Uncertainty

There are two fundamental types of probability with subcategories:

(1) Physical/Objective probabilities (class probabilities), divided into:

(i.) A priori probabilities (mathematical/Classical probabilities)
(ii.) Relative frequency probabilities (or a posteriori/empirical/experimental probabilities), and

(2) Subjective probability (or evidential/Bayesian probability).

These are discussed below, with the issue of uncertainty in section (3).

(1) Physical/Objective Probabilities
Again, these are divided into:

(i.) A priori probabilities (mathematical/Classical probabilities), and
(ii.) Relative frequency probabilities (or a posteriori/empirical/experimental probabilities).

Objective probabilities are either in practice or in theory quantifiable with a numerical value (or numerical coefficient of probability). The numerical value that describes the likelihood of an occurrence or event can range from 0 (impossibility) to 1 (certainty).

A priori probabilities can be calculated from antecedent information and before the experiment or the event in question, such as probabilities of coin tosses.

Relative frequency probabilities, on the other hand, are derived from the empirical data of a sufficiently representative, random sample. Usually a reference class and attribute of interest are involved, and in theory the probability can be expressed as a numerical value, calculated as a fraction where the denominator is the number of members in the reference class and the numerator is the number of members of the reference class who have the attribute involved. Probabilities are assigned to events on the basis of available evidence or sample, and therefore may be different when people have different sized data.

But is also possible to view a priori probabilities as relative frequency probabilities: hence the probability of heads in a fair coin toss at 0.5 can be conceived as the relative frequency of that outcome in repeated experiments of coin tosses over many instances, and as the repeated experiments approach infinity supposedly the numerical value will approach 0.5.

Advocates of the frequentist interpretation of probability might contend that a priori probabilities do not exist, but are ultimately explained by relative frequencies. It is interesting that Ludwig von Mises referred to objective probabilities as “class probabilities,” under the influence of his brother Richard von Mises (1883–1953), a proponent of the frequentist interpretation of physical probabilities.

I assume (I could be wrong) that if Bayesian probability uses frequency probabilities, it may also be able to yield objective probabilities.

A fundamental point is that risk (as opposed to uncertainty) is associated with objective probabilities, either a priori probabilities or relative frequency probabilities, when a numerical value can be assigned, as Frank Knight argued (though Knight’s terminology was potentially misleading as he also called risk “measurable uncertainty”).

Post Keynesians would argue that risk is not the relevant concept in many entrepreneurial investment decisions, but uncertainty.

(2) Subjective Probability (or evidential probability/Bayesian probability)
In instances where probabilities of events cannot be analysed in terms of relative frequencies or because the events are unique and cannot be included in a reference class, probability theory has been developed that measures “degrees of belief,” and that can be termed “subjective probability.” The usual procedure for this is some form of Bayesian probability theory.

In neoclassical economics, subjective probability theory was developed from the work of John von Neumann, Oskar Morgenstern, Frank Ramsey, Bruno de Finetti, and Leonard J. Savage, the latter of whom (drawing on Bayesian probability theory as well) formulated a formal model of decision-making where optimal decisions are made to maximise expected utility, and probability distributions are given by subjective evaluations.

But even here uncertainty is seen as a state of the mind, not as a state of the world, and ultimately Walrasian general equilibrium theory in its various forms requires real, objective probabilities to actually exist for events in economic decision making, and for the subjective probabilities of agents to converge towards these objective probabilities over time.

Curiously, though being subjectivists, Austrian economists reject the expected-utility representation of decision making under uncertainty in neoclassical economics (Langlois 1994: 118). We should also note that Ludwig von Mises’s “case probability” is not really the same thing as Bayesian subjective probability. Case probability is a purely subjective form of probability and Mises argued that “case probability is not open to any kind of numerical evaluation” (Mises 1998: 113). By contrast, Bayesianism does give numerical values to evidential probabilities, even if these are deemed subjective, but are updated and revised in light of new evidence.

(3) Uncertainty
In understanding uncertainty, the distinction between ergodic and non-ergodic processes is important. For neoclassical theory, reliable knowledge of the future requires the assumption of the ergodic axiom. Ergodicity is a property of some process or phenomenon in which time and/or space averages or attributes of that system either coincide for an infinite series or converge as the finite number of observations increases (Dunn 2012: 434). Thus a sufficient sample of the past can be said to reveal the future in an ergodic process.

But, for Post Keynesians, the complications involved in assessing the ergodic or non-ergodic nature of an economic process might be considerable, especially as there exist:

(1) genuinely ergodic economic processes/phenomena;

(2) genuinely non-ergodic economic processes/phenomena;

(3) economic processes/phenomena that appear ergodic for short periods of calendar time, but may change. (Dunn 2012: 435).

For example, non-stationarity and Shackle’s “crucial decision” concept in decision making are sufficient conditions for non-ergodicity, but not necessary conditions (Dunn 2012: 435–436). Future events or processes that are created by human agency are, above all, candidates for non-ergodicity.

Events where objective probabilities exist imply an ergodic world or a justified use of the ergodic axiom. Information from past and present data series should allow a probability estimate that approaches the objective numerical value as the data increases, even for future events.

Keynesian uncertainty (in the sense of Keynes and Post Keynesianism) stresses the unknowable nature of the future and the inappropriateness or profound limitations of probability theory.

Although there is not an exact equivalence between all the various concepts below (and perhaps some important differences), these concepts of uncertainty are roughly similar to Keynesian uncertainty:

(1) Knightian (unmeasurable) uncertainty;

(2) Misesian case probability;

(3) G. L. S. Shackle’s radical uncertainty;

(4) Ludwig Lachmann’s radical uncertainty;

(5) Austrian “structural uncertainty” (Langlois 1994: 120);

(6) Loasby’s partial ignorance, and

(7) O’Driscoll and Rizzo’s genuine uncertainty.

When the idea of fundamental uncertainty is understood as a crucial one for economic science, the next question is: how do economic agents act and make decisions under uncertain conditions?

George L. S. Shackle developed a theory of decision making under uncertainty that dispensed with probability theories in describing such behaviour, and this was a project derived from the work of Frank Knight and Keynes. In contrast, as we have seen, mainstream neoclassical economics via Arrow adopted the use of subjective probability in decision making theory, and effectively denied the (1) risk versus (2) Knightian/Keynesian uncertainty distinction.

Neoclassical theory was influenced by the work of Frank Ramsay and Leonard J. Savage and essentially went down the path of subjective probability theory with a Bayesian flavour.

I conclude by posing some other questions that seem important to me:

(1) what is the contribution and value of Gilboa and Schmeidler’s non-additive probability approach to decision-making under uncertainty?

(2) to what extent did Ludwig von Mises follow the frequentist interpretation of probability of his brother Richard von Mises?

(3) Knight made a distinction between “statistical probability” and “estimated probability.” Is “estimated probability” more or less “subjective probability”?

(4) What is the significance of Daniel Kahneman and Amos Tversky’s critiques of standard economic decision making theory, and that of Daniel Ellsberg in Risk, Ambiguity and Decision (2001)?

BIBLIOGRAPHY
Copi, Irving, Cohen, Carl and Kenneth McMahon. 2011. Introduction to Logic (14th edn.). Prentice Hall, Boston, Mass. and London.

Dunn, S. P. 2012. “Non-Ergodicity,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics (2nd edn.), Edward Elgar, Cheltenham, UK and Northampton, MA. 434–439.

Langlois, R. 1994. “Risk and Uncertainty,” in Peter J. Boettke (ed.), The Elgar Companion to Austrian Economics. E. Elgar, Aldershot. 118–122.

Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar's Edition. Mises Institute, Auburn, Ala.

Runde, Jochen. 2000. “Shackle on Probability,” in Stephen F. Frowen and Peter Earl (eds.), Economics as an Art of Thought: Essays in Memory of G. L. S. Shackle. Routledge, New York.

Skyrms, B. 2010. “Probability, Theories of,” in Jonathan Dancy, Ernest Sosa, and Matthias Steup (eds.), A Companion to Epistemology (2nd edn.). Wiley-Blackwell, Oxford. 622–626.

King on Post Keynesian Approaches to Microfoundations

John E. King has a new book called The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics (Cheltenham, 2012). J. E. King is also the author of the indispensable A History of post-Keynesian Economics since 1936 (Cheltenham, 2002), one of those books that continue to reward you every time you read it (or even a chapter of it).

His new book should be of some interest, and does not disappoint. I have read only a few chapters as yet, and there is no doubt that the book is required reading: it raises fundamental issues in economics, economic methodology, philosophy of science, social sciences and epistemology.

Its fundamental subjects are: are conventional views on microfoundations justified, and what is the Post Keynesian approach to microfoundations?

King sees four basic viewpoints amongst Post Keynesians on microfoundations:

(1) explicit supporters of microfoundations who think Post Keynesian microfoundations are superior to neoclassical ones (e.g., Paul Davidson, Malcolm Sawyer, Erich Streissler), usually a system of Marshall-Keynes microfoundations or, alternatively, Kaleckian microfoundations;

(2) explicit critics of microfoundations (Joan Robinson);

(3) those who are confused, inconsistent or unclear (e.g., Geoff Harcourt, Sidney Weintraub, John Cornwall, Victoria Chick, and Jesper Jespersen);

(4) those who just ignore the whole issue. (King 2012: 149–150).

One of the most important insights King makes is this: the idea of reducing macroeconomics to neoclassical microeconomics is an instance of the strong reductionist fallacy.

Strong reductionism has already failed, not only in biology, but also (more importantly) in the social sciences (King 2012: 226). There are fundamental emergent properties in macroeconomic systems that make their reduction to microeconomics impossible (King 2012: 226).

For example, a lower-order set of parts in a biological system may interact in ways that cannot be inferred by reductionist analysis (King 2012: 51). The principle of “downward causation” consists in the manner by which a “whole” (a system broadly defined) may affect, constrain or influence its parts.

In economics, we see macroeconomic phenomena that are irreducibly social in nature.

Nor does the strong version of methodological individualism work (King 2012: 60; see also Hodgson 2007). For interactions between individuals may cause “emergent properties” or (that is to say) novel properties not displayed by, or deducible from, the individuals in isolation.

The idea that the economy is more than the sum of its parts can be traced back to (interestingly enough) the 19th century advocate of infant industry protectionism Friedrich List (King 2012: 66).

As an aside, King points out that Richard Dawkins’s “genetic determinism can very easily degenerate into the worst type of Social Darwinism.” A whole section in King provides criticisms of Dawkins’s (alleged) genetic determinism (King 2012: 48ff.), but I think it might be unfair to Dawkins himself for reasons explained by Steven Pinker (2003: 112–114).

King gives two reasons for the continuing attraction of the neoclassical microfoundations delusion: physics envy and politics in the age of neoliberalism (King 2012: 229). Reductionist ontological thinking in economics is nothing less than the attempt to reduce macroeconomics to the aggregate of micro behaviour, and the assumption of individual rationality implies a socially rational outcome (King 2012: 229, quoting Denis 2009: 14). In other words, this method produces the delusion that laissez faire results in the best economic outcomes.

Finally, I just want to note how Steve Keen has argued in much the same terms as King in also pointing out how (1) macroeconomic processes are emergent properties not necessarily reducible to microeconomics, and (2) how neoclassical economics commits the fallacy of strong reductionism: although reductionism does work to a great extent, it also has fundamental limitations.

One can hear Keen talk of these issues in the video below at 15.24 onwards. See also Keen 2011: 205–209.





BIBLIOGRAPHY

Hodgson, G. M. 2007. “Meanings of Methodological Individualism,” Journal of Economic Methodology 14.2: 57–68.

Keen, S. 2011. Debunking Economics: The Naked Emperor of the Social Sciences (rev edn.). Zed Books, New York and London.

King, J. E. 2012. The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics. Edward Elgar, Cheltenham.

Pinker, Steven 2003. The Blank Slate: The Modern Denial of Human Nature. Penguin Books, London.

Roundtable Discussion on Post Keynesianism

An interesting discussion here by William Black, Randall Wray and Michael Hudson of Post Keynesianism while on KCUR.org’s Central Standard (September 29, 2012):

http://cpa.ds.npr.org/kcur/audio/2012/09/Central_9-27-2012.mp3

Lachmann and Post Keynesianism on Prices

Ludwig Lachmann wrote the following on the nature of prices that is of some interest:

“In different markets prices are formed in different ways. Not all pricefixing agents have the same interests. Here historical change plays its part. The decline of the wholesale merchant, whose dominating role Marshall took for granted, for instance in textile markets, and who naturally aimed at setting such prices as would permit him to maximize his turnover (a short-run consideration), reduced the range of markets with flexible prices. The rise of the industrial cost accountant as a pricefixer, with his interest in ‘orderly marketing’ (a long-run consideration) and his aversion to frequent price changes, has made most prices of industrial goods in our world Hicksian fixprices. In all markets dominated by speculation of course prices must be flexible. On the other hand, all bureaucracies, including those concerned with production planning in large industrial enterprises, naturally abhor flexible prices.” (Lachmann 1994: 166).

In Classical economics (from Smith to Mill), the equilibrium value of prices in the long run was essentially the cost of production. With the marginalist revolution, value was held to be subjective, and prices a consequence of the marginal utilities of market participants (Lachmann 1994: 165).

Yet, with the existence of “fixprices” in many markets, it is obvious that cost of production plus the profit markup must explain how prices are set in the real world.

That nobody can sell a product for which there is no subjective demand is obviously true, but after that the subjective theory of value has its limitations.

While economic “value” defined simply as the pleasure, utility or satisfaction we derive from commodities is subjective, it is a mistake to think that prices are therefore all subjective, or just determined by subjective utilities. One has to distinguish “price theory” from “value theory,” but curiously modern neoclassical economics has largely dispensed with “value theory.” As I. A. Kerr has pointed out,

“[m]ore recently, the attitude of neoclassical economists to the value/price distinction has been one of indifference, rather than hostility … value theory is virtually synonymous with price theory and many economists would be hard pressed to explain the difference between the two. In fact, the two terms are widely conflated by neoclassical economists” (Kerr 1999: 1218).

Yet that conflation is a mistake.

The existence of price setting/price administration is real.

You might wonder: where does this leave the idea held by neoclassicals and some Austrians of an economy with a strong tendency to a general equilibrium, in which prices gravitate to their equilibrium, market clearing levels? It leaves the idea looking highly suspect, to say the least.

From the perspective of Walrasian general equilibrium theory, all real world prices are “disequilibrium prices” (Lachmann 1994: 165).

While one can point to certain flexprice markets where eliminating excess stock leads to some flexibility in price, and we regularly see “clearance sales” by retailers to liquidate unsold stock, the notion of a general “market clearing, equilibrium price” in many other markets with fixprices/administered prices must be judged a myth. The empirical reality is discussed by F. S. Lee:

“Where reported … business enterprises stated that variations in their prices within practical limits, given the prices of their competitors, produced virtually no change in their sales and that variations in the market price, especially downward, produced little if any changes in market sales in the short term. Moreover, when the price change is significant enough to result in a non-insignificant change in sales, the impact on profits has been negative enough to persuade enterprises not to try the experiment again … The absence of any significant market price-sales relationship in the short term has also been noted in various industry studies … Consequently, business enterprises do not utilize an inverse price-sales relationship when making pricing decisions and nor do they set their prices to achieve a specific volume of sales. Instead, the prices they set are maintained for a variety of sales volumes over time.” (Lee 1994: 319–320).

Lee concludes that this “necessarily means that administered prices are not market-clearing prices and nor do they vary with each change in sales (or shift in the virtually non-existent market or enterprises ‘demand curve’)” (Lee 1994: 320, n. 18).

The inference from this and empirical reality is, of course, that with really large falls in demand, businesses fire workers and cut production. Prices are not adjusted to clear markets with excess volume.


BIBLIOGRAPHY

Kerr, I. A. 1999. “Value foundation of Price,” in P. A. O’Hara (ed.), Encyclopedia of Political Economy, Routledge, London and New York. 1217–1219.

Lachmann, L. M. 1982. “The Salvage of Ideas: Problems of the Revival of Austrian Economic Thought,” Journal of Institutional and Theoretical Economics 138.4: 629–645.

Lachmann, L. M. 1986. The Market as an Economic Process. Basil Blackwell. Oxford.

Lachmann, L. M. 1994. Expectations and the Meaning of Institutions: Essays in Economics (ed. Don Lavoie). Routledge, London.

Lee, F. S. 1994. “From Post Keynesian to Historical Price Theory, Part 1: Facts, Theory and Empirically Grounded Pricing Model,” Review of Political Economy 6.3: 303–336.

Price Rigidity in New Keynesianism and Post Keynesianism

An empirical observation of real world economies is that the prices of a considerable number of goods respond slowly or incompletely to changes in demand. According to empirical studies in the Western economies, firms only rarely change their prices, perhaps on average once a year (Melmiès 2010: 450).

The genesis of New Keynesian economics was in fact an attempt to establish empirical support for price stickiness, even though the New Classicals argued that the existence of price stickiness allegedly lacked microeconomic foundations in view of their rational expectations theory (Melmiès 2012: 452).

The New Keynesians proposed various explanations of real world price stickiness, including the following factors:

(1) Menu costs
(2) Implicit contracts
(3) Nominal contracts
(4) Coordination failure
(5) Cost-based pricing
(6) Constant marginal cost
(7) Non-price competition
(8) Pricing threshold
(9) Link between quality and price. (Melmiès 2012: 453).

More empirical work established that businesses themselves viewed the implicit contract, nominal contract, coordination failure, and cost-based pricing factors as the most important in affecting price rigidity (Melmiès 2012: 453; Blinder 1998). Most notably, the New Keynesian menu costs, nonprice competition, and costly information ideas did not receive much support (Melmiès 2010: 453).

Furthermore, the New Keynesian idea is fundamentally one of constrained price stickiness: firms wish to change their prices, but are constrained by factors from doing so (Melmiès 2012: 454).

By contrast, Post Keynesians would say that many firms quite deliberately set prices. Firms act to ensure their survival and grow their business and market share. By looking more at the long term state of demand, the price of many products is often not affected by short term changes in demand. The most important cause of price adjustments are changes in the costs of factor inputs and wages. Thus the pricing policies of firms are quite conscious and deliberate acts of price administration and setting, and this action results in a deliberately-caused price stickiness in the market. A consequence of this is that profit margins are also stable, and such margins are needed for internal financing of investment.

It is important to distinguish between the New Keynesian view of price rigidity and that of Post Keynesianism.

New Keynesians believe that, if only prices were perfectly flexible, then economies would adjust rapidly to full employment equilibrium. Post Keynesians, following Keynes himself, reject the view that perfectly flexible wages, prices and perfect competition would lead to full employment equilibrium. Even if there were perfectly flexible wages and prices, there could still be failures of aggregate demand (Davidson 1992).

In Post Keynesianism, therefore, price rigidity is not the fundamental cause of demand affecting output (Melmiès 2012: 456).


BIBLIOGRAPHY

Blinder, A. S. et al. (eds.). 1998. Asking About Prices: A New Approach to Understanding Price Stickiness, Russell Sage Foundation, New York.

Davidson, P. 1992. “Would Keynes be a New Keynesian?,” Eastern Economic Journal 18.4: 449–463.

Melmiès, J. 2010. “New-Keynesians Versus Post-Keynesians on the Theory of Prices,” Journal of Post Keynesian Economics 32.3: 445-466.

Melmiès, J. 2012. “Price Rigidity,” in J. E. King, The Elgar Companion to Post Keynesian Economics (2nd edn.). Edward Elgar, Cheltenham. 452–456.

Louis-Philippe Rochon on What Should Central Banks Do?

I have posted a video below of the Post Keynesian Louis-Philippe Rochon, talking on the various views of central bank and monetary policy within Post Keynesianism. Louis-Philippe Rochon has also been co-editor of some recent Post Keynesian studies (see Rochon and Vernengo 2001; Rochon and Rossi 2003).

There is a legitimate argument here about the extent of the effectiveness of monetary policy and its (negative/positive) effects on real output. Rochon distinguishes between two traditions within Post Keynesian economics:

(1) the activist Post Keynesians (Basil Moore [1988], Giuseppe Fontana, Thomas Palley), who, instead of an inflation target, wish to use activist monetary policy to target output, investment or capacity utilization;

(2) the group Rochon calls the “parking it” Post Keynesians, who contend the fiscal policy is the main tool to target output, employment and investment, while monetary policy comes with disturbing side effects on real variables. The relationship between interest rates and output is complex and not linear: the monetary transmission between interest rates and real economic variables is unreliable and complicated. The interest rate should be parked at a given level and fiscal policy should be employed. They are three further subdivisions within the “parking it” Post Keynesians:

(i) the Smithin rule: the real rate of interest should be very low, close to zero (John Smithin);
(ii) the Kansas city rule: the nominal rate of interest should be zero, possibly negative real rates of interest (Wray, Matthew Forstater, Pavlina Tcherneva).
(iii) the Pasinetti rule/Fair Rate rule: the real rate of interest should be equal to the rate of growth of labour productivity (Pasinetti).

These approaches are derived from the Keynes and Kaldor endogenous money tradition; they reject neoclassical, new consensus inflation targeting.





BIBLIOGRAPHY

Moore, B. J. 1988. Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press, Cambridge and New York.

Rochon, Louis-Philippe and Matias Vernengo (eds.). 2001. Credit, Interest Rates, and the Open Economy: Essays on Horizontalism, Edward Elgar Pub., Northampton, MA.

Rochon, Louis-Philippe and Sergio Rossi (eds.). 2003. Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Edward Elgar Pub, Cheltenham.

Degrees of Uncertainty

There is an interesting review here by Michael Emmett Brady of Gerald P. O’Driscoll and Mario J. Rizzo’s The Economics of Time and Ignorance (2nd edn; Routledge, Oxford, UK., 1996):

http://www.amazon.com/review/R25I26NGH79Y3I

Towards the end, Michael Emmett Brady states that

“Let us now turn to p. 9. The authors make the bizarre claim that Paul Davidson’s Shacklean, Post Keynesian views, that there is only certainty and uncertainty, is a continuation of those parts of the [General Theory] … that represent a true subjectivist position. Unfortunately, Shackle never got past chapter 3 of the [Treatise on Probability] … and rejected Keynes’s entire [Treatise on Probability] … approach in toto. Neither Shackle nor Davidson are followers of Keynes because Keynes totally rejected nihilism and the bizarre Shackle-Davidson claim that there are no degrees/gradations of uncertainty which Keynes spelt out clearly in his 1937 QJE article, titled ‘The General Theory of Employment’. Uncertainty is a range that can be specified in the same identical manner as Keynes’s weight of the evidence index, w. Complete and total uncertainty (ignorance) would have a w = 0. The differing gradations of uncertainty would be between 0 and 1 (0 < w < 1). Complete certainty would have a w = 1. The two authors never specify what their term ‘genuine’ uncertainty is. Their discussions of the beauty contest example (p. 156, GT), which is a continuation of a discussion started by Keynes in his introductory chapter 3 of the [Treatise on Probability] … in 1921 (1908) on the measurement of probabilities, does not fit the bill.”

I have just re-read Keynes’s paper “The General Theory of Employment” (Quarterly Journal of Economics 51 [1937]: 209–223). The crucial passage where Keynes talks about degrees of uncertainty is here:

“By ‘uncertain’ knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty; nor is the prospect of a Victory bond being drawn. Or, again, the expectation of life is only slightly uncertain. Even the weather is only moderately uncertain. The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention, or the position of private wealthowners in the social system in 1970. About these matters there is no scientific basis on which to form any calculable probability whatever” (Keynes 1937: 213–214).

It is indeed possible to see the concept of degrees of uncertainty, and Barkley Rosser describes Keynes’s views on the probability of future events in A Treatise on Probability (1921: 33), and how uncertainty comes in different forms:

“(i) ... there are no probabilities at all (fundamental uncertainty),
(ii) ... there may be some partial ordering of probable events but no cardinal numbers can be placed on them,
(iii) ... there may be numbers but they cannot be discovered for some reason, and
(iv) ... there may be numbers but they are difficult to discover” (Barkley Rosser 2001: 559).

There is also a literature about degrees of uncertainty, some of it by Post Keynesians (Runde 1990; Dow 1995; Crocco 2002; Dequech 1997).

At this point it is notable that Paul Davidson uses the concept of non-ergodicity to reject the view that there are degrees of uncertainty (Crocco 2002: 19). Nevertheless, there are Post Keynesians who recognise degrees of uncertainty, e.g., S. C. Dow (1994: 437). Moreover, here is Jesper Jespersen:

“Uncertainty is caused by lack of information. Therefore uncertainty might have different intensities or ‘stats of confidence’. You may feel(!) more or less uncertain, but except for rare cases all individual activities are characterized by (different degrees of) uncertainty, because one cannot know nor estimate the exact outcome. Hence, expectations are uncertain due to this inherent lack of information (and a constantly changing environment).”
Jesper Jespersen, “Post-Keynesian economics: uncertainty, effective demand & (un)sustainable development,” Paper, Dijon-conference, Dijon, 10-12 December 2009. p. 8.

It seems to me an exaggeration to say that the Post Keynesian school does not recognise degrees of uncertainty. Clearly not everyone follows Davidson.

BIBLIOGRAPHY

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

Crocco, M. 2002. “The Concept of Degrees of Uncertainty in Keynes, Shackle, and Davidson,” Nova Economia 12.2: 11–28.

Dequech, D. 1997. “Uncertainty in a Strong Sense: Meaning and Sources,” Economic Issues 2.2: 21–43.

Dow, S. C. 1994. “Uncertainty,” in P. Arestis and M. Sawyer (eds.), The Elgar Companion to Radical Political Economy, Elgar, Aldershot. 434–438.

Dow, S. C. 1995. “Uncertainty about Uncertainty,” in S. C. Dow and J. Hillard (eds), Keynes, Knowledge and Uncertainty, Edward Elgar, Aldershot. 117–127.

Keynes, J. M. 1921. A Treatise on Probability (1st edn.), Macmillan, London.

Keynes, J. M. 1937. “The General Theory of Employment,” Quarterly Journal of Economics 51: 209–223.

Runde, J. 1990. “Keynesian uncertainty and the weight of arguments,” Economics and Philosophy 6.2: 275–292.