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Introduction to Post-Keynesian Economics
This book shows how the realistic foundations and stylized facts of Post-Keynesian economics give rise to macroeconomic implications that are different from those of received wisdom with regards to employment, output growth, inflation and monetary theory, and offers an alternative to neoclassical economics and its free-market economic policies.
164 pages, Hardcover
First published October 3, 2006
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About the author
Marc Lavoie
30 books13 followersProfessor of Economics at the Department of Economics, Univesity of Ottawa.
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September 15, 2023تورم مفاهیم و صوریسازی فروبسته و غیر انضمامی در اقتصاد جریان اصلی به نظر حتی در این اثر که کباده هترودکسی میکشید هم دست از سر نویسنده برنداشته هرچند برای آشنایی با کینزیهایی که خوانشی دگراندیشانه داشتند و پساکینزیها به معنای عامش که درواقع همزمان با کینز شروع به حرکت کرده بودند اوایل کتاب دستِ پر است اما حالا حالاها راه دارد تا ادعای هترودکسی! بیشتر روی کالکی مانور میداد و مفاهیم را حول تئوریهایش اواخر کتاب بسط میداد و از پس تشریح درونزا بودن چرخه پولی و پیشرفت درونزا هم بر نیامد قبلا در مقالات خیلی وبلاگی و دمدستی تشریحات غنیتری دیده بودم. ذیلا اینکه مملکت فارسی زبان شعبدهباز است، یک بار شنیدم چیز میزهایی تحت عنوان اقتصاد دینی را هم اقتصاد هترودکس محسوب میکنند، منتهی بخش اقتصادش را متوجه نشدم از زبان اینها....گفتم که مغلوط نشود اشتباها خلاصه؛ صرفا امریست مشتبه شده بر شیرینسخنانی شیرینعقل.
September 4, 2018
Really excellent introduction to post-Keynesian (mostly Kaleckian) economics. It gets pretty technical at times, but Lavoie clearly explains key principles like effective demand, non-substitutability of goods, fundamental uncertainty, etc, while also counterposing these to the basic tenets of neoclassical economics. There’s too much here for me to review comprehensively, but the one Marxist contention I have is the conclusion that Lavoie reaches after his explanation of Michal Kalecki’s paradox of costs.
Most simply put, the paradox of costs explains how higher wages that cut into firms’ profit margin will ultimately lead to a higher profit rate in the economy as a whole. If capitalists pay higher wages, then the cost of these higher wages cuts into the capitalist’s profit margin. On a microeconomic scale, this means that the capitalist’s profit rate is lowered. However, higher wages for workers allow them to buy more, leading to an increase in overall demand for goods (i.e. an increase in aggregate demand). Because demand has increased, firms are encouraged to increase their output and capital investment as their markets are expanding. In the long-run, their profit-rate and rate of accumulation will ultimately be even higher than before the wage increases. The paradox is thus that higher wages that cut into firms’ profits ultimately end up increasing profit rates in the long-run.
From this, Lavoie derives that the Marxist opposition of capital and labor is wrong and that the two can work together harmoniously. Like most other Keynesians, he comes to the conclusion that capitalism can be good as long as it has a healthy dose of state intervention. But this conclusion is incredibly strange given that this book is on Kalecki. Kalecki’s most famous text, “Political Aspects of Full Employment,” is precisely about why social democratic policies that continue to exist within a capitalist framework are ultimately politically unsustainable. The higher wages that put the paradox of costs into motion don’t fall out of the sky. Along with other policies that increase aggregate demand, these wages are the product of class struggle and are always indicative of the balance of class forces.
Unlike just about all other economists, Kalecki is keyed into the political dynamics behind economic policies and acknowledges that full employment policies that maintain high aggregate demand can only exist with an organized working class. In Kalecki’s view, capitalists don’t want sustained full employment policies even if it helps maximize their profit rate through the paradox of costs. That’s because when workers are guaranteed a job, capitalists lose their most powerful weapon: “the power of the sack,” i.e. the threat of firing workers. The absence of this weapon allows workers to organize further and further until they begin challenging capitalist property relations themselves. Here, we hit the “Kalecki point.” At this point there are two outcomes: workers destroy capitalist property relations, or capitalists fight back full-force and tear down workers’ gains. The former is socialism; the latter is free-market capitalism. Therefore, Kalecki himself would never say that the paradox of costs shows the sustainability of social democratic capitalism. Due to the political dynamics behind the welfare state, social democracy is always politically unstable and ultimately must collapse.
Additionally, there’s a free rider problem for firms. Although capitalists might know that higher wages will lead to higher demand for their own products, their own contribution to the rise in aggregate demand is miniscule and they’d rather have some other capitalist pay higher wages instead. No firm would ever be willing to pay higher wages in order to contribute to the large macroeconomic pool of aggregate demand. In addition, if a firm’s workers do not consume the products they produce, then the increase in demand from higher wages will be miniscule or zero for that individual firm. I don’t think that Lavoie would disagree with this, but this just goes to show that no capitalist would willingly accept higher wage costs regardless of its net benefit on aggregate demand.
Most simply put, the paradox of costs explains how higher wages that cut into firms’ profit margin will ultimately lead to a higher profit rate in the economy as a whole. If capitalists pay higher wages, then the cost of these higher wages cuts into the capitalist’s profit margin. On a microeconomic scale, this means that the capitalist’s profit rate is lowered. However, higher wages for workers allow them to buy more, leading to an increase in overall demand for goods (i.e. an increase in aggregate demand). Because demand has increased, firms are encouraged to increase their output and capital investment as their markets are expanding. In the long-run, their profit-rate and rate of accumulation will ultimately be even higher than before the wage increases. The paradox is thus that higher wages that cut into firms’ profits ultimately end up increasing profit rates in the long-run.
From this, Lavoie derives that the Marxist opposition of capital and labor is wrong and that the two can work together harmoniously. Like most other Keynesians, he comes to the conclusion that capitalism can be good as long as it has a healthy dose of state intervention. But this conclusion is incredibly strange given that this book is on Kalecki. Kalecki’s most famous text, “Political Aspects of Full Employment,” is precisely about why social democratic policies that continue to exist within a capitalist framework are ultimately politically unsustainable. The higher wages that put the paradox of costs into motion don’t fall out of the sky. Along with other policies that increase aggregate demand, these wages are the product of class struggle and are always indicative of the balance of class forces.
Unlike just about all other economists, Kalecki is keyed into the political dynamics behind economic policies and acknowledges that full employment policies that maintain high aggregate demand can only exist with an organized working class. In Kalecki’s view, capitalists don’t want sustained full employment policies even if it helps maximize their profit rate through the paradox of costs. That’s because when workers are guaranteed a job, capitalists lose their most powerful weapon: “the power of the sack,” i.e. the threat of firing workers. The absence of this weapon allows workers to organize further and further until they begin challenging capitalist property relations themselves. Here, we hit the “Kalecki point.” At this point there are two outcomes: workers destroy capitalist property relations, or capitalists fight back full-force and tear down workers’ gains. The former is socialism; the latter is free-market capitalism. Therefore, Kalecki himself would never say that the paradox of costs shows the sustainability of social democratic capitalism. Due to the political dynamics behind the welfare state, social democracy is always politically unstable and ultimately must collapse.
Additionally, there’s a free rider problem for firms. Although capitalists might know that higher wages will lead to higher demand for their own products, their own contribution to the rise in aggregate demand is miniscule and they’d rather have some other capitalist pay higher wages instead. No firm would ever be willing to pay higher wages in order to contribute to the large macroeconomic pool of aggregate demand. In addition, if a firm’s workers do not consume the products they produce, then the increase in demand from higher wages will be miniscule or zero for that individual firm. I don’t think that Lavoie would disagree with this, but this just goes to show that no capitalist would willingly accept higher wage costs regardless of its net benefit on aggregate demand.
February 1, 2021
Surprisingly tough, as a second year economics student I have only understood about 80%, would not recommend it to anyone without a solid footing in economics.
But because it was so challenging, it also managed to teach me a lot about Post-Keynesian Economics, especially about the more formal aspects of it and how their models are comprised, which is something that I have (obviously) not been exposed to in my orthodox economics classes.
Definitely worth the effort!
But because it was so challenging, it also managed to teach me a lot about Post-Keynesian Economics, especially about the more formal aspects of it and how their models are comprised, which is something that I have (obviously) not been exposed to in my orthodox economics classes.
Definitely worth the effort!
September 30, 2014
Heterodox economics explained beautifully ... you don't need to be an economist to understand this book from start to finish. I did have some more questions around heterodox economics (particularly with regards to how post-Keynesian's interpret inflation), but that's the purpose of a good introductory book - it gets you thinking and asking questions, which encourages further reading.
All-round this is a fantastic book and well worth the read.
All-round this is a fantastic book and well worth the read.
October 29, 2021
I was never formally taught economics beyond high school, so a lot of the formal modelling went over my head. However, it's rather easy to skim past those because the author conveniently put them aside into info boxes.
The central claim of post-Keynesian economics, I gather from this book, is that growth is led by increases to aggregate demand. "Aggregate demand" here primarily refers to wages. When a worker's wage is increased, they either buy more stuff with it or invest it. Either way, because workers are spending more, firms can afford to ramp-up production in order to chase more profit.
One key practical difference between neoclassical economics and post-Keynesian economics lie in the policy tool used to combat inflation. In neoclassical economics, the policy emphasis lies in managing the volume of money in respect to volume of goods within the market, or what we call as 'monetary policy'. Post-Keynesian, however, conceive the problem of inflation in a much more political manner. Post-Keynesian sees inflation as being primarily caused by increased firm productivity, which gradually lowered the share of profits going to the workers. This is because most of the increased profit usually goes to the capitalist first. Workers will see this, and respond by conducting political actions with the goal of increased wage.
Circling back to the concept of demand-led economic growth, aggregate increase to workers' wages and full employment of the population will allow firms to ramp up production. However, in the absence of workers' political power or high unemployment, extra profits generated by any incidental increase to firm productivity will be gobbled-up by capitalists, while leaving much less to the workers. Stagnant real wage/unemployment will result in relatively decreased aggregate demand, which will constrain the growth of the economy. This is called the "paradox of cost". Individual firms will try to channel more profits to capitalists, but in the aggregate, channeling more profits to workers will actually benefit capitalists more in the long run.
The book closes by urging policymakers to reverse the priorities of most modern governments and central banks, by making full employment — instead of inflation —as the main priority.
The central claim of post-Keynesian economics, I gather from this book, is that growth is led by increases to aggregate demand. "Aggregate demand" here primarily refers to wages. When a worker's wage is increased, they either buy more stuff with it or invest it. Either way, because workers are spending more, firms can afford to ramp-up production in order to chase more profit.
One key practical difference between neoclassical economics and post-Keynesian economics lie in the policy tool used to combat inflation. In neoclassical economics, the policy emphasis lies in managing the volume of money in respect to volume of goods within the market, or what we call as 'monetary policy'. Post-Keynesian, however, conceive the problem of inflation in a much more political manner. Post-Keynesian sees inflation as being primarily caused by increased firm productivity, which gradually lowered the share of profits going to the workers. This is because most of the increased profit usually goes to the capitalist first. Workers will see this, and respond by conducting political actions with the goal of increased wage.
According to post-Keynesians, inflation is primarily a result of conflicts between social classes over the proper distribution of income, that is between rentiers, workers and entrepreneurs (Taylor, 1991, ch. 4; Cassetti, 2003). High rates of utilization lead to high profit rates, which encourage workers and their unions to make greater wage demands (Kaldor, 1985, p. 39). This is particularly the case when these high profit rates are accompanied by high growth rates and low unemployment rates. But with adequate wage bargaining institutions, there does not need to be any positive relationship
between high output growth and high inflation rates (Hein, 2002). Moreover, the higher cost of raw materials induced by a world-wide boom can be dampened with the help of supranational buffer stocks. Inflation is far from being inevitable; it is the unfortunate result of inefficient institutions.
Circling back to the concept of demand-led economic growth, aggregate increase to workers' wages and full employment of the population will allow firms to ramp up production. However, in the absence of workers' political power or high unemployment, extra profits generated by any incidental increase to firm productivity will be gobbled-up by capitalists, while leaving much less to the workers. Stagnant real wage/unemployment will result in relatively decreased aggregate demand, which will constrain the growth of the economy. This is called the "paradox of cost". Individual firms will try to channel more profits to capitalists, but in the aggregate, channeling more profits to workers will actually benefit capitalists more in the long run.
The book closes by urging policymakers to reverse the priorities of most modern governments and central banks, by making full employment — instead of inflation —as the main priority.
April 3, 2019
هدف نویسنده فقط نقد مکتبهای نئوکلاسیک نیست؛ بلکه ادعا میکند نظریهی جایگزینی ارائه کرده که در تضاد با دیدگاههای جریان اصلی بازار آزاد است و آنها را رد میکند. تاکید اصلی این رویکرد پساکینزی بر تولید حداکثریست، آن هم به خاطر دستیابی به اشتغال کامل (چیزی که در دیگر مکتبهای هترودوکس هم دیده میشود): دولت و بانک مرکزی باید سیاستهایی مانند کاهش تورم را رها کنند و بچسبند به ایجاد شغل برای هر کسی که خواهان کار است و نمیتواند در بخش خصوصی کار تماموقت پیدا کند. 0
abandoned
August 26, 2021کتاب خوبی برای شروع جدی اقتصاد خوندن نبود. و البته تو شرایط خوبی هم نبودم. ترجمهٔ قابل قبولی داشت ولی این قضیه که یه سری واژگان تخصصی رو فارسی کرده بدون این که بیاد بگه انگلیسی اینها چیه اذیتکننده بود.
January 26, 2018
3 x tak, dziękuję
December 11, 2018
Pretty readable, great bibliography, chapters 1,2,3 are really good. Rare example of clear economic writing where an actual discussion happens and the meaning of changes in models is actually elaborated.
-Seems like there’s not that much meat in the formal mathematical Kaleckian labor market. It has already been established that the “usual” conditions for an advanced capitalist economy are excess supply (every where below the labor demand curve). The real insight—paradox of thrift/paradox of costs—can be summarized in just a few sentences with no math or curves. Any further analysis ought to come from real case studies. Case studies and citations of data are key for the discussion of wage-led growth that comes along in chapter 5. You can make a really nice mathematical proof of wage-led growth, but the debate won’t be settled without evidence.
-Seems like there’s not that much meat in the formal mathematical Kaleckian labor market. It has already been established that the “usual” conditions for an advanced capitalist economy are excess supply (every where below the labor demand curve). The real insight—paradox of thrift/paradox of costs—can be summarized in just a few sentences with no math or curves. Any further analysis ought to come from real case studies. Case studies and citations of data are key for the discussion of wage-led growth that comes along in chapter 5. You can make a really nice mathematical proof of wage-led growth, but the debate won’t be settled without evidence.
December 14, 2021
I read about half of this book, up to chapter 3. I'd say it is well written, ordered and, in general, fairly easy to read. The ideas are presented in a simple and clear way, which I think is good for readers with very little background in non-orthodox economics or in economics at all. However, all of this is not without disadvantages, for the fact that it covers a lot of themes in such a reduced space means a lot of details are left out. Yet this is true for all introductions, so I do not think it really hurts the quality of the book.
Another thing worth pointing out, and Lavoie himself does so, is that the book rests vastly on the Kaleckian approach of post-keynesianism. This does not mean the rest of approaches are not mentioned, but the book is definitely Kalecki-centered. This is not bad per se, but it might be good to know in case you are looking for something else.
Another thing worth pointing out, and Lavoie himself does so, is that the book rests vastly on the Kaleckian approach of post-keynesianism. This does not mean the rest of approaches are not mentioned, but the book is definitely Kalecki-centered. This is not bad per se, but it might be good to know in case you are looking for something else.
Displaying 1 - 10 of 10 reviews