Monday, June 16, 2014

Davidson on the History of Post Keynesianism

Paul Davidson (2003–2004 and 2005) presents a history of Post Keynesian economics in response to King (2002).

In contrast to King (2002) and Hamouda and Harcourt (1988), Davidson (2003–2004: 247) argues that neither Sraffians nor Kaleckians should be identified as Post Keynesians.

Sraffians, Davidson contends, do not accept Keynes’ emphasis on uncertainty and have no proper place for money in their economic system, and Michał Kalecki, unlike Keynes, did not think interest rates had an important effects on economic life, his monetary analysis was different from that of Keynes, and his theory (unlike Keynes’) assumed that some degree of monopolistic competition was a necessary condition for involuntary unemployment (Davidson 2003–2004: 247, 249). In addition, Sraffians and Kaleckians do not overthrow the neoclassical ideas of neutral money and ergodicity (Davidson 2003–2004: 263).

Whether Joan Robinson, Nicholas Kaldor, and Roy Harrod were really the first Post Keynesians or better seen as “forefathers” and a “foremother” of Post Keynesianism is, according to Davidson, a minor “quibble,” but Kalecki should not be classified as a Post Keynesian (Davidson 2003–2004: 247).

Next, Davidson notes the animosity between Roy Harrod and the Cambridge Keynesians (such as Robinson, Kahn, and Kaldor), and to a lesser extent the bad relations between Robinson and Kaldor (Davidson 2003–2004: 249–250).

This may well have hindered a unified Post Keynesian front in the post-WWII period, and another consequence was that two Post Keynesian generalisations of growth theory were developed in the UK: that of Roy Harrod and that of Joan Robinson in the Accumulation of Capital (1954) (Davidson 2003–2004: 250).

Another impediment was the hysterical McCarthyism that plagued America after 1945 and caused British Post Keynesianism to be suspect, which greatly hindered it in the US in those years (Davidson 2003–2004: 250–251).

While King sees the Cambridge capital controversy as instrumental in the emergence of Post Keynesian economics as a distinct school (King 2002: 80), Davidson sees the publication of Sidney Weintraub’s book An Approach to the Theory of Income Distribution (1958) as the moment when Post Keynesian economics emerged, and also holds that Weintraub was the “founding father of Post Keynesianism in the United States” (Davidson 2003–2004: 251–252).

In America, a major development was the foundation of the Journal of Post Keynesian Economics by Sidney Weintraub and Paul Davidson in 1978, as Post Keynesians were being excluded from mainstream journals (Davidson 2003–2004: 257).

In contrast to King, Davidson does not see Minsky as a Post Keynesian, and notes that
“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). …. In reality Minsky was, and always wanted to be, a mainstream Keynesian who used the Modigliani variant of the IS-LM system and whose major distinction from other mainstream Keynesians was that he possessed knowledge of actual real-world financial markets.” (Davidson 2003–2004: 252).
Furthermore, Davidson does not see Alfred Eichner’s work as essentially Post Keynesian, but as an attempt to generalise Kalecki’s theory and even as a “special case of the emerging New Keynesian theory where wage and price rigidity was an essential element” (Davidson 2003–2004: 256).

In short, although Davidson once adopted a “broad tent” view of what Post Keynesianism is (Davidson 2005: 394–395), he now sees this “broad tent” approach to Post Keynesianism as adopted by Hamouda and Harcourt (1988) as a stumbling block to a coherent Post Keynesian school, and prefers a “narrow tent” definition of Post Keynesianism (or “fundamental Keynesianism”) as a school that rejects the three classical axioms, namely, the ergodic axiom, the neutral money axiom and the gross substitution axiom (Davidson 2003–2004: 263; Davidson 2005: 395–397).

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

Davidson, Paul. 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.

Hamouda, O. F. and Geoffrey Colin Harcourt. 1988. “Post-Keynesianism: From Criticism to Coherence?,” Bulletin of Economic Research 40.1: 1–33.

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


  1. Post-Keynesians like Paul Davidson claim that only Post-Keynesians understand Keynes: “Keynes’s analysis was never understood by the established leaders and trendsetters of the economics profession” (Davidson: 173).

    However, Post-Keynesian ignore an important fact - Keynes accepted the IS-LM model. Don Patinkin shows that Keynes gave “consistent approval of the IS-LM interpretation of the General Theory” (Patinkin: 214)

    In Keynes's March 1937 letter to Hicks on the IS-LM model, Keynes wrote that he "found it very interesting and really have next to nothing to say by way of criticism".

    “in his correspondence with Harrod, Reddaway, Meade, and Hicks on their respective review articles, Keynes did not express any objection to the fact that each in his own way had presented the analysis of the General Theory in terms of a general-equilibrium system of simultaneous equations” (Patinkin: 213).

    Patinkin points out that “the one diagram that we do find in the General Theory is logically equivalent to the IS curve” (Patinkin: 224).

    Allan Meltzer also shows that Keynes accepted the IS-LM model: “Keynes was willing to accept the IS-LM model with some qualifications, principally about expectations” (Meltzer: 255).

    In fact, Meltzer notes that Keynes used the general-equilibrium framework well before the General Theory in the Treatise on Money: "much of the analytic framework that eventually became the General Theory of Employment, Interest, and Money are found in the Treatise.... The Treatise advances the analysis by recognizing that the interest rate is determined as part of a simultaneous general equilibrium solution ... The analysis of the Treatise introduces the key ideas that became familiar as the IS-LM model" (Meltzer: 111-112).

    "Among the many contributions Keynes made to economics, none is more lasting than the stimulus he gave to the development of the theory of output and employment within a general equilibrium framework" (Meltzer: 196).

    Finally, Keynes never published a criticism of the IS-LM model. Keynes would have published a criticism of the IS-LM model if he rejected the IS-LM model. The fact that Keynes never criticized the IS-LM model in print poses serious problems for the Post-Keynesians.

    Post-Keynesians ignore (or deny) the fact that Keynes accepted the IS-LM interpretation of the General Theory. Why? Post-Keynesians want to associate themselves with Keynes to enhance the credibility of Post-Keynesian policy recommendations. Post-Keynesian policy recommendations do not follow from IS-LM analysis, so Post-Keynesians must deny the IS-LM model. Post-Keynesians must claim that only Post-Keynesians understand the master.

    1. Aside from the issue of the IS-LM model...

      Believe it or not, Keynes's Monetary Theory: A Different Interpretation by Allan Meltzer is an excellent and even-handed analysis of J.M. Keynes's intellectual thought in economics over the legendary British economist's lifetime.