Macroeconomic Methodology

Macroeconomic Methodology

A Post-Keynesian Perspective

Jesper Jespersen

Jesper Jespersen presents a treatise on the importance of the choice of methodology within macroeconomics. Given that no scientifically based macroeconomic policy recommendation should be established without an evaluation of the methods employed, this book gives a clear exposition of how proper macroeconomic analysis should be undertaken. Furthermore, it is convincingly argued that one of the lasting contributions of John Maynard Keynes was his emphasis on methodology; that macroeconomic consequences of uncertainty could not be analysed within the established general equilibrium framework. It is due to post-Keynesian economics supported by critical realism that the understanding of Keynes’s methodology has been resurrected, which has eventually resulted in renewed debate on realistic macroeconomic policies to restore full employment without inflation.

Chapter 1: Keynes-Inspired Macroeconomic Theory in a Methodological Perspective

Jesper Jespersen

Subjects: economics and finance, economic psychology, history of economic thought, methodology of economics, post-keynesian economics

Extract

INTRODUCTION This chapter will explain why the group of ‘Keynesian’ economists cannot be perceived as belonging to one homogeneous school of thought. As already indicated in Figure 0.1 which illustrates ‘the macroeconomic family tree’, there are a number of theoretical schools that employ the description ‘Keynesian’, regardless of the fact that they are located at opposite sides of the methodological chasm. This is confusing, to put it mildly, and this chapter will attempt to redress the issue. The reasons for this convergence of designation can be found in the sphere of political aspiration, since a common result from old-Keynesians, new-Keynesians and post-Keynesians is that macroeconomic policy can exert significant influence on economic development. That is something that the three schools of theory have in common with Keynes. In the 1930s, he developed his macroeconomic theory as a reaction to the prevailing (macro) economic orthodoxy that recommended a laissez-faire policy combined with a strengthening of market forces as means of curing unemployment. Keynes’s General Theory contained some theoretical arguments as to why even within a well-functioning and competitive market economy full employment is a special case, so that economic policy can contribute to keeping macroeconomic development on the track of full employment. Post-Keynesian theory is a direct continuation of Keynes’s macroeconomic tradition, understood as theory and method, which was initiated in 1936. It maintains the requirement for an active economic policy derived from analyses within the framework of an open macroeconomic landscape. We will return to these methodological issues in the...

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