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Keynes and Macroeconomics After 70 Years

Keynes and Macroeconomics After 70 Years

Critical Assessments of The General Theory

Edited by L. Randall Wray and Matthew Forstater

In this substantial new collection, esteemed Post-Keynesian scholars reassess the relevance of Keynes’s The General Theory to a broad array of topic areas, ranging from the environment, investment finance, exchange rates, and socialism, as well as inquiries into general Post-Keynesian theory.

Chapter 7: Modeling Keynes with Kalecki

Colin Richardson and Jerry Courvisanos

Subjects: economics and finance, post-keynesian economics


Colin Richardson and Jerry Courvisanos* INTRODUCTION The starting-point for neoclassical interpretations of Keynes’s system is ‘Modeling Keynes with Hicks’. Students are thereby misled into believing that Keynes analysed a general equilibrium exchange economy (summarized by the IS curve, with production merely an ‘exchange with nature’) in which the underlying barter transactions were obscured by a ‘veil of money’ (summarized by the LM curve). However, Keynes himself strongly emphasized that his analysis applied to a monetary production economy, one in which both aspects were well integrated. By contrast, the starting-point for Post Keynesian interpretations of Keynes’s system should be ‘Modeling Keynes with Kalecki’. It is true that Keynes’s quaesitum can be understood by a close reading of both volumes of his Treatise on Money and then the General Theory, but his analysis was lengthy and complex, with hardly any mathematics or graphs deployed. Keynes, in fact, criticized the use of mathematical models to understand complex reality: ‘[I]n ordinary discourse . . . we can keep “at the back of our heads” the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials “at the back” of several pages of algebra which assume they all vanish’ (Keynes, 1936, pp. 297–8).1 However, modern economics teaching practice demands mathematical models that track rigorous arguments in an erudite manner. Post Keynesian instructors need a mathematical modeling tool of comparable simplicity to Hicks’s IS–LM framework to help...

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