Keynes and Macroeconomics after 70 Years To the memory of Hyman Minsky Robert Heilbroner Tom Asimakopulos Robert Eisner John Kenneth Galbraith To Paul and Louise Davidson Keynes and Macroeconomics after 70 Years Critical Assessments of The General Theory Edited by L. Randall Wray Center for Full Employment and Price Stability,University of Missouri–Kansas City,USA and Mathew Forstater Center for Full Emploment and Price Stability,University of Missouri–Kansas City,USA Edward Elgar Cheltenham,UK • Northampton,MA,USA © L.Randall Wray and Mathew Forstater 2008 All rights reserved.No part of this publication may be reproduced,stored in a retrieval system or transmitted in any form or by any means,electronic, mechanical or photocopying,recording,or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing,Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number:2008937108 ISBN 978 1 84720 581 0(cased) Printed and bound in Great Britain by MPG Books Ltd,Bodmin,Cornwall Contents List of contributors vii Introduction L.Randall Wray and Mathew Forstater ix PART I KEYNES AND HETERODOX ECONOMICS 1 Heterodox macroeconomics:what,exactly,are we against? 3 John E.King 2 Keynes the Keynesian:a Lakatosian insight into Keynes’s ‘probable’theoretical contributions to macroeconomics after 1937 20 Jesús Muñoz and Joel Bonales PART II FOUNDING FATHERS OF POST KEYNESIAN ECONOMICS 3 Minsky and Keynes on investment volatility:was there an overstatement? 37 André Lourenço 4 Two founding fathers of the Post Keynesian critical appraisal of self-balancing mechanisms? 51 Lino Sau 5 The contributions of Tom Asimakopulos to Post Keynesian economics 64 G.C.Harcourt 6 Asimakopulos’s criticism of Keynes’s short-period equilibrium:a reformulation 80 Abdelkader Slifi PART III KEYNESIAN MODELS 7 Modeling Keynes with Kalecki 99 Colin Richardson and Jerry Courvisanos 8 A Keynesian model for the 21st century 123 H.Sonmez Atesoglu v vi Keynes and macroeconomics after 70 years 9 Capital accumulation,income distribution,technical progress and endogenous money in a Post Keynesian macrodynamic model 137 Luciano Dias Carvalho and José Luís Oreiro PART IV KEYNESIAN POLICY 10 Keynes on the control of the money supply and the interest rates 157 Carlo Panico 11 Inflation targeting in Brazil:a Keynesian approach 176 Luiz Carlos Bresser-Pereira and Cleomar Gomes da Silva 12 Eisner’s radical approach to social security – tell the truth! 196 Stephanie Kelton PART V MODERN DEVELOPMENT AND EXTENSIONS OF KEYNESIAN ECONOMICS 13 Investment finance and financial sector development 207 Bokhyun Cho 14 Keynes’s theory of probability,investment behavior,and behavioral finance 223 Edwin Dickens 15 Real exchange rate levels,investment and growth:a Keynesian perspective 234 Paulo Gala 16 A reinterpretation,remedy and development of Keynes’s liquidity preference theory 245 Wenge Huang 17 Keynes’s ‘revolving fund of finance’and transactions in the circuit 259 Steve Keen 18 Monetary and fiscal policies in a Post Keynesian stock–flow consistent model 279 Edwin Le Heron 19 Expectations and unemployment 309 J.W.Nevile and Peter Kriesler Index 321 Contributors H. Sonmez Atesoglu is Professor of Economics at Clarkson University, Potsdam,NY,USA. Joel Bonales is Professor and Researcher in Economics at the Universidad Latinamericana,the Universidad Panamericana,Mexico City,Mexico. Luiz Carlos Bresser-Pereira is Professor Emeritus of Economics and Political Theory at the Getulio Vargas Foundation in São Paulo,Brazil.He is also editor of the Brazilian Journal of Political Economy. Luciano Dias Carvalho is Assistant Professor of Economics at State University of the West of Paraná,Francisco Beltrão,Brazil. Bokhyun Cho is Professor of Economics at the Hanbat National University,Daejeon,South Korea. Jerry Courvisanosis Senior Lecturer in Innovation and Entrepreneurship in the School of Business at the University of Ballarat,VIC,Australia. Cleomar Gomes da Silvais Professor of Economics of the Getulio Vargas Foundation in research at the Center for International Economics, São Paulo,Brazil. Edwin Dickens is in the Department of Economics and Finance at Saint Peter’s College,Jersey City,NJ,USA. Mathew Forstateris Associate Professor of Economics at the University of Missouri–Kansas City,USA. Paulo Galais Assistant Professor at the São Paulo School of Economics, São Paulo,Brazil. G.C.Harcourtis Reader in the History of Economic Theory and a Fellow of Jesus College at Cambridge University,Cambridge,United Kingdom. Wenge Huang holds an MBA degree from China Europe International Business School and now serves as a Vice President of Beijing Jiuzhouding Investment Consulting Co.,Ltd,Beijing,China. Steve Keen is Associate Professor of Economics and Finance at the University of Western Sydney,Penrith,NSW,Australia. vii viii Keynes and macroeconomics after 70 years Stephanie Keltonis Assistant Professor of Economics at the University of Missouri–Kansas City, Kansas City, MO, USA and a Research Scholar with the Center for Full Employment and Price Stability. John E.Kingis Professor of Economics in the Department of Economics and Finance at La Trobe University,Melbourne,VIC,Australia. Peter Kriesler is Associate Professor at the Centre for Applied Economic Research at the University of New South Wales,Sydney,NSW,Australia. Edwin Le Heron is Professor at the Institute of Political Sciences in Bordeaux, France and President of the French Association for the Development of Keynesian Studies. André Lourençois Professor ofMacroeconomics at Federal University Rio Grande do Norte in Natal,Brazil. Jesús Muñozis Professor and Researcher in Economics at the Universidad Latinamericana, the Universidad Panamericana, and at the Center for Economic,Managerial and Social Research at the National Polytechnique Institute,Mexico City,Mexico. J.W. Nevile is Visiting Emeritus Professor at the Centre for Applied Economic Research at the University of New South Wales,Sydney,NSW, Australia. José Luís Oreirois Associate Professor ofEconomics at Federal University of Paraná,Curitiba,Brazil. Carlo Panico is Professor of Economics in the Department of Economic Theory and Applications at the University of Federico II of Naples, Naples,Italy. Colin Richardson is at Imperial College, London, England and the University of Abertay,Dundee,Scotland. Lino Sau is a Senior Researcher of Political Economy in the School of Communication Studies at the University of Turin,Turin,Italy. Abdelkader Slifi is Assistant Professor at the University of Picardie Jules Verne,Amiens,France. L.Randall Wrayis Professor of Economics at the University of Missouri– Kansas City,Kansas City,MO,USA. Introduction L. Randall Wray and Mathew Forstater This volume contains a selection of the papers that were presented at the 9th International Post Keynesian Conference, organized by Jan Kregel, Mathew Forstater, and L. Randall Wray and held at the University of Missouri–Kansas City (UMKC) in September 2006. The conference was jointly sponsored by the Journal of Post Keynesian Economics, UMKC’s Center for Full Employment and Price Stability (CFEPS), and the Economics Department of UMKC.The conference is normally part of a workshop that takes place every other year,carrying on the long tradition that was begun in the 1980s by Jan Kregel,Piero Garengnani,and Sergio Paranello. The workshops were originally held in Trieste, Italy, and were continued by Paul Davidson at the University of Tennessee–Knoxville before finally settling in Kansas City. Traditionally, the workshop includes both a conference and a summer school,combined over a 10–14-day period.However,because the 2006 con- ference would be celebrating several significant anniversaries,it was sched- uled for September,and the summer school was held separately in June.The summer school was a smashing success,with over 70 graduate students and faculty from around the world discussing not only a wide range of topics in Post Keynesian economics but also institutionalist,Marxian,and fem- inist economics. In addition, anthropology, sociology, and Black studies were included in the curriculum, reflecting the interdisciplinary nature of UMKC’s PhD program.Many of the students and faculty would return to Kansas City for the conference in September. We are most grateful to the members of the summer school faculty for volunteering their time: Morteza Ardebili, Barbara Bonnekessen, Robert Brazelton,S.‘Charu’Charusheela,Jerry Courvisanos,Colin Danby,Eliseo Fernandez,Mathew Forstater,Scott Fullwiler,Michael K.Green,John F. Henry, Jan Kregel, Frederic S. Lee, John Marangos, Donald Matthews, Jesús Muñoz, Christopher Niggle, Erik Olsen, Tanya Y. Price, Michael J. Radzicki, Jim Sturgeon, Linwood Tauheed, Pavlina Tcherneva, James Webb,and L.Randall Wray. More than 150 economists from around the world attended the September conference,which celebrated:the 60th anniversary of Keynes’s ix