Wednesday, February 26, 2014

Post Keynesianism Contrasted With Neoclassical Economics

The following is reproduced from "An Essay on Post-Keynesian Theory: A New Paradigm in Economics", Al Eichner and Jan Kregel's 1975 Journal of Economic Literature article. Of course, the table being a summary, all entries are highly stylized.

AspectPost Keynesian TheoryNeoclassical Theory
Dynamic propertiesAssumes pronounced cyclical pattern on top of a clearly discernible growth pathEither 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 distributedInstitutional factors determine a historical division of income between residual and non-residual shareholders, with changes in that distribution depending on changes in the growth rateThe distribution of income explained solely by variable factor inputs and the marginal productivity of those variable factor inputs
Amount of information assumed to be availableOnly the past is known, the future is uncertainComplete foresight exists as to all possible events
Conditions that must be met before the analysis is considered completeDiscretionary income must be equal to discretionary expendituresAll markets cleared with supply equal to demand in each of those markets
Microeconomic baseImperfect markets with significant monopolistic elementsPerfect markets with all micro units operating as price takers
Purpose of the theoryTo explain the real world as observed empiricallyTo demonstrate the social optimality if the real world were to resemble the model


Calgacus said...

IIRC, that article is reprinted in the original 1979 A Guide to Post-Keynesian Economics edited by Eichner, which one can still get for very little at Amazon, and is worth getting even if my memory doesn't serve.

Robert Vienneau said...

That book does relate to that article, but it is not reprinted in it. The Guide is an attempt to present a more expanded introduction to Post Keynesian economics, hopefully creating a larger response than was created by the article.

I prefer the 1979 Guide to the 2001 New Guide. Maybe that is just me.