Critical Assessments of The General Theory
Edited by L. Randall Wray and Matthew Forstater
Chapter 4: Two Founding Fathers of the Post Keynesian Critical Appraisal of Self-balancing Mechanisms?
Lino Sau* INTRODUCTION The Post Keynesian literature has often scrutinised the similarities and diﬀerences between the theoretical work of John Maynard Keynes and Michael Kalecki. On the one hand, Davidson (2000) has emphasised that the principle of eﬀective demand elaborated by Keynes is more general and, to some extent, superior to that independently discovered and elaborated by Kalecki. On the other hand, Kriesler (2002) and Lopez (2002) have argued that Kalecki’s theory of price, distribution, investment, money and ﬁnance is, in many respects, superior to Keynes’s General Theory. There are certainly many diﬀerences between the contributions of these two economists; nevertheless, in this chapter we try to ‘compound’ Keynes’s and Kalecki’s critical analysis of the ‘classical’ assumption that ﬂexibility of wages and prices is always able to ensure full employment equilibrium. In fact, both Keynes (1923, 1931, 1936) and Kalecki (1937, 1944, 1966) denied the existence of self-balancing endogenous mechanisms able to stabilise the economic system, and opened the way to Post Keynesian approaches seeking to demonstrate that wage and price ﬂexibility can be destabilising. In ‘A Tract on Monetary Reform’ (1923), in a set of writings from 1931 to 1933 and in The General Theory (1936: Ch. XIX), Keynes questioned the viability of ﬂexible wages and prices to restore full employment. In a comment on Pigou (1944) and in Studies in the Theory of Business Cycles (1966), Kalecki argued that falling prices will not necessarily stimulate an increase in aggregate demand when ﬁrms and households have...
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