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The Structure of Post-Keynesian Economics
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 (ISBN-13: 9780511247613 | ISBN-10: 0511247613)


The Structure of Post-Keynesian Economics


This book is a major contribution to post-Keynesian thought. With studies of the key pioneers – Keynes himself, Kalecki, Kahn, Goodwin, Kaldor, Joan Robinson, Sraffa and Pasinetti – Geoff Harcourt emphasises their positive contributions to theories of distribution, pricing, accumulation, endogenous money and growth. The propositions of earlier chapters are brought together in chapters 6 and 8 in an integrated narrative and interpretation of the major episodes in advanced capitalist economies in the post-war period, leading to a discussion of the relevance of post-Keynesian ideas to both our understanding of economies and to policy-making. (Chapter 7 is concerned with theories of growth from Adam Smith to the present day.) The appendixes include biographical sketches of the pioneers and an analysis of the conceptual core of their discontent with orthodox theories. Drawing on the author's experience of teaching and researching over fifty years, this book will appeal to undergraduate and graduate students interested in alternative approaches to theoretical, applied and policy issues in economics, as well as to teachers and researchers in economics.

G. C. HARCOURT is Emeritus Reader in the History of Economic Theory, University of Cambridge, Emeritus Fellow of Jesus College, Cambridge and Professor Emeritus of the University of Adelaide.







The Structure of
Post-Keynesian Economics

The Core Contributions of the Pioneers

G. C. Harcourt








CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

CAMBRIDGE UNIVERSITY PRESS
The Edinburgh Building, Cambridge CB2 2RU, UK

Published in the United States of America by Cambridge University Press,
New York

www.cambridge.org

Information on this title: www.cambridge.org/9780521833875

© G. C. Harcourt 2006

This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.

First published 2006

Printed in the United Kingdom at the University Press, Cambridge

A catalogue record for this publication is available from the British Library

ISBN-13 978-0-521-83387-5 hardback
ISBN-10 0-521-83387-6 hardback

Cambridge University Press has no responsibility for
the persistence or accuracy of URLs for external or
third-party internet websites referred to in this publication,
and does not guarantee that any content on such
websites is, or will remain, accurate or appropriate.







Contents


List of figures page vii
Preface and acknowledgements ix
1 Introduction: why post-Keynesian economics and who were
its Cambridge pioneers?
1
2 Post-Keynesian macroeconomic theories of distribution 6
 Kaldor's ‘Keynesian’ theory 6
 Kalecki's ‘degree of monopoly’ theory 11
 Kalecki's review of Keynes' General Theory 21
 The eclecticism of Joan Robinson 25
 Hahn's finest hour: the macroeconomic theory of employment and
distribution of his PhD dissertation
29
3 Post-Keynesian theories of the determination of the mark-up 32
 Wood's ‘Golden Age’ model 32
 The choice of technique in the investment decision: orthodox and
post-Keynesian approaches
37
 Harcourt and Kenyon's model in historical time 43
 Why is internal finance to be preferred?: Kalecki's theory of increasing risk 50
4 Macroeconomic theories of accumulation 55
 Keynes' theory: right ingredients, wrong recipe 55
 Lerner's internal critique 57
 Kalecki's, Joan Robinson's and Asimakopulos' Keynesian critique 60
 Joan Robinson's banana diagram 61
5 Money and finance: exogenous or endogenous? 66
6 The complete model: its role in an explanation of post-war
inflationary episodes
72
7 Theories of growth: from Adam Smith to ‘modern’
endogenous growth theory
84
 Introduction 84
 Smith and Ricardo 85
 Marx 95
 Harrod 102
 Solow–Swan 109
 Kaldor, Mark 1 114
 Joan Robinson (as told to Donald Harris) 119
 Goodwin's eclecticism 121
 Pasinetti's grand synthesis 123
 Kaldor, Mark 2 134
 Endogenous growth theory 139
8 Applications to policy 145
 The vital link between ‘vision’ and policy 145
 ‘Package deals’: a solution to the Kaleckian dilemma? 147
Appendix 1: Biographical sketches of the pioneers: Keynes,
Kalecki, Sraffa, Joan Robinson, Kahn, Kaldor
158
 John Maynard Keynes, 1883–1946 158
 Michal Kalecki, 1899–1970 160
 Piero Sraffa, 1898–1983 164
 Joan Robinson, 1903–1983 166
 Richard Kahn, 1905–1989 170
 Nicholas Kaldor, 1908–1986 172
Appendix 2: The conceptual core of the post-Keynesian discontent
with orthodox theories of value, distribution and growth
177
Bibliography 185
Index 199






Figures


2.1Kaldor's ‘Keynesian’ theory of distribution page 9
2.2Joan Robinson's diagram of Kalecki's model 12
2.3Kalecki's firm in the short period 23
2.4Accumulation and internal finance: systemic effects 28
2.5Hahn's short-period model of income distribution and activity 31
3.1Wood's opportunity frontier 35
3.2Wood's finance frontier 35
3.3The optimum p, g combination 36
3.4The family of opportunity frontiers 36
3.5The family of finance frontiers 37
3.6Choice of technique in Wood's model 38
3.7The best-practice isoquant, with constant returns to scale 39
3.8Choice of technique by the POPC, by Bob Rowthorn as told
to Geoff Harcourt
40
3.9Choice of technique by three different rules 41
3.10Expected marginal costs of production of existing vintages 45
3.11Price, output and output shortfall 46
3.12Price, quantity from new capacity 47
3.13Determination of extra capacity needed 47
3.14Determination of investment expenditure 48
3.15Determination of price and investment expenditure with
choice of technique
49
4.1Lerner's determination of Keynes' theory of investment 58
4.2Keynes' second argument as to why ρ is lower, the greater is
investment now
61
4.3Joan Robinson's banana diagram 64
6.1The relationship between growth and profitability 75
6.2Distribution and growth determined in Marglin's model 75
6.3Neo-Keynesian model of growth and distribution 77
6.4Overdetermination of g and r 78
6.5The uneasy truce engineered by sustained inflation 79
6.6Episode 1: higher growth, higher price inflation 81
6.7Dynamic stagflation 81
6.8Episode 3: lower growth, lower inflation 82
7.1The individual capitalist tenant farmer 92
7.2Total ‘corn’ production in the agricultural sector 93
7.3Harrod à la Sen 106
7.4Harrod's model with an autonomous term in the saving
function
109
7.5Swan's Way 111
7.6Kaldor's technical progress function, first model 116
7.7Kaldor's representative firm 117
7.8Class war, accumulation and crisis 120
7.9Kaldor's two-sector complementary model 135
7.10Growth for ever: 1 140
7.11The steady state in Solow's model 141
7.12Growth for ever: 2 144
A2.1Short-period utilisation possibilities doubling up for
long-period accumulation possibilities
179
A2.2Samuelson's (1996) example of Wicksell effects in the
simple Austrian model
183
A2.3Demand for capital (per unit of labour) in Samuelson's
(1966) model
183






Preface and acknowledgements


While writing this book, I have had in mind two sets of readers: first, undergraduate and graduate students who may be looking for alternative approaches to thinking about theoretical, applied and policy issues in economics. By presenting a structure of the thought (and its origins) that I have found so helpful over my working life I hope to at least interest and possibly even enthuse this first set. Secondly, I also hope that what I have written may interest teachers and researchers in economics, not so much perhaps for the details of the analysis, with which many will be familiar, but for the way in which one person at least sees the interconnections and interrelationships which have emerged as our discipline has evolved and developed.

The ideas in the book themselves have evolved and developed for me over the past fifty years, in both lectures and research. My model is not exactly Dennis Robertson's three volumes of lectures on Economic Principles in Cambridge, Robertson (1957, 1958, 1959); but I suppose it has something in common with them, even with his admission that ‘if it is all wrong, it can't be helped now’ (Robertson 1957, 7). I trust, though, that I have not written in quite as querulous a tone as that into which Robertson sometimes lapsed, for I remain, as ever, a happy and enthusiastic, even optimistic, person who nevertheless is willing to admit that he may be wrong.

I wrote the first draft of this Preface in April 2005, in the fiftieth year since I first came to Cambridge in September 1955. Half my working life has since been spent here (the other half in Adelaide, most happy years) and I count myself most fortunate to have studied and taught in such a stimulating and satisfying, even if sometimes–no, often–so cantankerous an environment.

Much more than this, though, this year Joan and I will celebrate our Golden Wedding anniversary on 30th July. As ever, her love and support have made possible the writing of the book, much of which occurred in the study she imaginatively prepared for me in our New Square home when, having had three years' grace over and above the obligatory seventy years' constraint, I no longer had a room at Jesus. I would like to dedicate the volume to her with my love.

I am much indebted to many cohorts of pupils who have listened to my lectures, to my graduate students and colleagues in Adelaide, Cambridge and Toronto and to friends in many countries who have contributed greatly in discussions and their own writings to my understanding of economic issues. I hope I will not cause offence if I thank explicitly the people who have most directly influenced what I have written here: Mauro Baranzini, Stephanie Blankenburg, Wylie Bradford, Giuseppe Fontana, Prue Kerr, Tom Russell, Sean Turnell and the anonymous readers of the manuscript for Cambridge University Press.

Finally, may I thank Rhona Watson for her generous and efficient searches and for answers to my obscure queries, and Susan Cross, Frances Thomson, Frances Flood, Debra Armstrong and Janet Nurse who cheerfully typed the manuscript and never once complained about my atrocious handwriting.

Thanks are also due to Macmillan for the extract from Joan Robinson's Essays in the Theory of Economic Growth (1962) reproduced in chapter 3.

GCH
Cambridge
October 200

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