Pkt Essay, Research Paper

Post-Keynesian economic was formed and developed by economists such as Joan Robinson and Nicholas Kaldor who believed Keynesian economics was based on disequilibrium and uncertainty, and that challenges the general equilibrium assumptions of neo-classical theory. The main aim of post-Keynesian economics is to complete the unfinished Keynesian revolution.

Post-Keynesian economists fundamentally used ideas from Keynes and his concept of effective demand, Marxist economist Michael Kalecki to provide a critique of neo-classical economics beliefs and an alternative theory of markets. These economists again emphasise uncertainty, real time and actual market conditions. They also revived the classical link between macroeconomic theories of income distribution and economic growth using Keynesian analysis.

They emphasised that the role of financial markets and rejected the quantity theory of money, preferring effective demand as the major influence on income distribution.1

FOUNDATION @OF @POST |KEYNESIAN @ECONOMIC

MAJOR DEVELOPMENTS

In 1930s, Harrod fs work on growth dynamics was the first development of post-Keynesian economic which distinct from Keynesian analysis. The prevailing theory in economics was static rather than dynamic. Harrods f argued what was needed is a body of theory to explain what caused the observable movement of the economic system to change overtime. The Harrod-Domar formula, in which the growth rate as the dependent variable, is determined by the propensity to save and the incremental capital/output ratio.2

eThe Accumulation of Capital f by Robinson and eReview of Economic studies f by Kaldor were two key writings, which appeared in 1956. Both explained about the distinction between wages and profits in the work of Kalecki to explain an important aspect of growth dynamics, one inextricably linked to the distribution of income. 2 Such as an increase in the growth rate, because of the higher level of investment that it implied, would necessary be accompanied by a larger share of profits in national income, thus leaving workers relatively worth off. 2

In the 1960s, when American economy met a crisis which included inflation problem there was noting in the current neo-classical synthesis to suggest how the goal of full employment and price stability could be achieved conjointly, thus avoiding the need to make a Phillipsian choice between the two or even to explain how recession and inflation could occur simultaneously, as they could not solve through 1970s. 2

Characteristic of post-Keynesian Economic

There @are a number of propositions which all post-Keynesians accept. Sawyer (1989) concurs with Davidson (1981) on the following three: 1. The economy is a historical process, 2. In a certain world, expectations have a significant and unavoidable impact on economic events and, 3. Institutions, economic and political, are of paramount importance in shaping economic events.4

The main characteristics of post-Keynesian economic can be divided into four parts.

The first of all, the existence of uncertainty, this is one of the key elements of post-Keynesian analysis. Because of the existence of uncertainty that the future is unknown and unknowable so that economic agents f expectations can be easily frustrated. Market forces cannot account for the unknowability and unpredictability of the future and so can only disseminate incomplete, even misleading, information. As the future unfolds and become the present Joan Robinson suggests that, continues adjustment must be made. This process proceeds indefinitely without equilibrium ever being achieved, let alone maintained. Thus history matters. 4

Relatively to the first matter, the second characteristic is ethe existence of irreversible time f, where economic agents enter into commitments well before outcomes can be predicted. gHistorical time is sharply distinguished from logical time, which is rejected in post-Keynesian economics. Logical time is closely related to rationality and logical calculus. Problems associated with historical time are consequently assumed away by this mode of thought. Uncertainty is reduced to risk, which can be calculated by resources to the calculus of probability, in which case history becomes logical. Then the real economy tends to a long period position which is stable in that there is no tendency to drift away from it. h4 Hicks (1982) argue that this type of steady state economics g has encouraged economists to waste their time upon constructions that are often of great intellectual complexity but which are so much out of time, and out of history, as to be practically futile and indeed misleading h. 4

Third, is closely related to the second, is that economic agents commit themselves to contractors which are dominated in money, so that money and contracts are einitially and inevitably related. (Davidson, 1978) 4 The post-Keynesian let industrial and commercial companies borrow in expectation of higher future sales revenues to finance higher current production and distribution costs. So long as these companies can produce sound and adequate collateral, commercial banks will supply the amount of requested by them. 4 Those economists assumes today money is credit driven and demanded determined. Once this is accepted, it follows logically that the supply of and demand for money are interdependent. This is so since the supply of credit essentially depends on its demand. 4

The fourth characteristic of post-Keynesian economics is the unique role according to labour and labour markets. In the post-Keynesian view, there is not a labour market in the real world and instead of neo-classical determination, wages g emerge as the result of a bilateral administrated pricing process between employers and employees. Nominal labour contracts are argued upon and then prevail over some future period h(Moore, 1988). In post-Keynesian economics, real wages are determined not just in labour markets but in production markets as well (Kalecki, 1969). It is thus, higher wages are accompanied by additional demand for labour, not less. There is no functional relationship between the two variables, simply because wages and employment are determined by independent variables. 4

STRENGTH IN RELATION TO NEO-CLASSICAL ECONOMIC

Table1) Comparison of PKE and Neo-classical theory

Aspect Post-Keynesian theory Neo-classical Theory

Dynamic properties Assumes pronounced cyclical pattern on top of clearly discernible secular growth rate Either no growth, or steady-state expansion with market mechanisms assumed to preclude any but a temporary deviation from that growth path

Explanation of how income is distributed Institutional factors determine a historical division of income between residual and non residual shareholders, with changes in that distribution depending on changes in the growth rate The distribution of income explained solely by variable factor inputs and the marginal productivity of those variable factor inputs

Source: Eichner and Kregel (1975, p1309)

Key Features

1. refer to situations of imperfect competition in the general sense that some key attributes of perfect competition are absent. 5

2. Rather price are set by producers in pursuit of their own objectives and changed when the producers think fit. Those who set the price do so in their own interests.5

3. Firms may, of course, make mistakes and actual demand may diverge from that expected. Mistakes are generally absorbed by stock exchanges, but that does not mean that subsequent output decisions are influenced by those mistakes and stock changes. 5

CONCLUSION

Brief history and the foundation of post-Keynesian economic is as have been described in the first section. According to the table1, it is clear that post-Keynesian economic provides different approach to the dynamics and income distribution. The strength of post-Keynesian economy could be first refers to situations of imperfect competition in the general sense that some key attributes of perfect competition are absent. This rejects unnecessary attribute from consideration. Second, rather price are set by producers in pursuit of their own objectives and changed when the producers think fit. Those who set the price do so in their own interests. Price determination is more flexible than NCT.

Finally, Firms may, of course, make mistakes and actual demand may diverge from that expected. Mistakes are generally absorbed by stock exchanges, but that does not mean that subsequent output decisions are influenced by those mistakes and stock changes. This absorbs the shock of misleading.

REFERENCE AND BIBLIOGRAPHY

1. R.G Castle g The Evolution of Economic ideas h, Oxford University Press, 1991

2. A.S Eichner g A guide to Post-Keynesian Economics h, Sharp inc, 1979

3. P. Arestis g Recent developments in Post-Keynesian Economics h, Edward Elgar, 1992

4. P. Arestis g Post-Keynesian approach to economics h , Edward Elgar, 1992 5