The Post Keynesian school

Introduction
A heterogeneous group of economists, united solely by their rejection of the
neoclassical synthesis, often claim the same name to their approach to macroeconomic
modelling, namely Post Keynesian economics. Unfortunately many
of these heterogeneous models are merely variants of orthodox classical
theory and are not based on the theoretical revolution that underlies Keynes’s
(1936) General Theory. Consequently classifying many of these diverse economists
(for example Michal Kalecki, Piero Sraffa and his neo-Ricardian
followers), who still cling to variants of classical economics as Post Keynesian
economists, merely obfuscates the difference between Keynes (and those
Post Keynesians who use Keynes’s analytical model) and mainstream
macroeconomists who are really putting forth twenty-first-century versions
of classical analytical theory. A consistent, precise definition of Post Keynesian
economics will be presented in the next section.
While Lawrence Klein (1947) described Keynes’s analysis as representing a
‘revolution’ in economic theory, many economists claim that mainstream developments
in ‘Keynesian’ macroeconomics have turned out to be ‘a road to
nowhere’. The development of the ‘hydraulic’ Keynesian model, by economists
such as Hicks, Samuelson, Modigliani and Tobin, represents a ‘retreat back
inside the orthodox citadel’ (see also Gerrard, 1988; Coddington, 1976). Even
worse, the failure of orthodox Keynesian analysis and policy prescriptions
fuelled the monetarist and new classical ‘counter-revolutions’. Furthermore,
* Paul Davidson, Holly Chair of Excellence in Political Economy, Emeritus, University of
Tennessee, Knoxville, Tennessee (USA), is Editor of the Journal of Post Keynesian Economics.
the ‘new’ Keynesian research programme, which emerged as a response to the
critiques of the neoclassical synthesis by the new classical school, contains no
‘Keynesian beef’ (Davidson, 1994). In the light of these developments, from a
Post Keynesian perspective, the ‘Keynesian revolution’, in the sense of representing
a successful and radical break with classical thinking, never took off.
According to Holt (1997), most economists who call themselves Post
Keynesians have traditionally been divided into two broad groups, namely
the ‘European’ and the ‘American’ camps. The ‘European’, or Cambridge
UK, group includes the body of work associated with economists such as
Geoff Harcourt, Richard Kahn, Nicholas Kaldor, Michal Kalecki, Joan
Robinson and Piero Sraffa. Throughout the 1950s and 1960s some of Keynes’s
former Cambridge colleagues, in particular Joan Robinson, consistently and
repeatedly highlighted what they interpreted as the misinterpretation of
Keynes’s main insights by leading mainstream (‘bastard’) Keynesian thinkers
(Robinson, 1972). The second broad camp identified by Holt includes the
work of economists such as Victoria Chick, Alfred Eichner, Jan Kregel,
Hyman Minsky, Basil Moore, George Shackle, Sidney Weintraub and Paul
Davidson. Although Holt labels this latter group as ‘American’, it is the style
and emphasis of analysis, rather than nationality, that matters in deciding
who is in which broad group. For example, George Shackle is English and
Victoria Chick, though born in America, has spent most of her professional
career in England.
As a broad generalization Holt’s ‘European’ group, like all classical economists,
has emphasized the behaviour and functioning of the real economy
while ignoring, or at least downplaying, monetary and financial implications.
Some but not all in Holt’s American grouping have typically concentrated
their attention on the impact of uncertainty, and monetary and financial
influences, on the economy (see Hamouda and Harcourt, 1988; Chick, 1995;
Davidson, 1991, 1996, 2002; Arestis and Sawyer, 1998).
Although Eichner and Kregel (1975) have argued that Post Keynesian
economics represented a coherent alternative school of thought to mainstream
macroeconomic analysis, controversy still surrounds this claim
(Coddington, 1976, and Patinkin, 1990b, have provided excellent surveys of
the various interpretations of Keynes’s General Theory; see also Arestis,
1996; Walters and Young, 1997; and Snowdon and Vane, 1997a). In fact,
there is some basis for this lack of a coherent view because many who claim
to be Post Keynesians among Holt’s European group and at least one in the
American group utilize variants of a classical model rather than Keynes’s
financial and monetary analytical approach. Accordingly, in the remainder of
this chapter, rather than survey the complete body of work created by this
heterogeneous group of economists all wanting to display the label of Post
Keynesians, I argue that only those analytical models that adopt Keynes’s
principle of effective demand and recognize the importance liquidity preference
plays in the General Theory (Keynes, 1936) are entitled to use the
appellation of Post Keynesians. The main thrust of this argument implies that
the true theoretical legacy of Keynes cannot be found within any branch of
mainstream Keynesianism, old or new.