The Contributions of Marx, Keynes and Kalecki
Chapter 8: The Problem of Market Forms in Modern Macroeconomics
8.1 INTRODUCTION Current mainstream macroeconomic models are very often based on an assumption of imperfect, or monopolistic competition, both in goods markets and in the labour market. In particular, New Keynesian macroeconomics is characterized by this assumption on market forms. From this point of view, therefore, modern macroeconomics can be put in relation to the Kaleckian approach expounded in the previous chapters. The present chapter brieﬂy looks at the current mainstream in macroeconomics in order to better illustrate and understand this relationship. The object of the present chapter is not to offer an exhaustive survey of the literature on macroeconomic models with monopolistic competition.1 Here, we concentrate only on some aspects of these models. In particular, the chapter concentrates on those features of macroeconomic models with monopolistic competition that Solow (1998) regards as most interesting and with a ‘Keynesian ﬂavour’. Solow regards macroeconomic models based on the hypothesis of monopolistic competition as an alternative to the New Classical Macroeconomics. Such models are able to provide different and more satisfactory analyses of the economy’s behaviour at the micro and macro levels. First, non-perfectly competitive models can explain the existence of excess supply, or excess capacity. In fact, in imperfect competition ﬁrms would be generally ready to produce more at the existing current price if there were additional demand for their goods. As a consequence, in such a context, an increase in aggregate demand has a multiplier effect. Second, models based on monopolistic competition can explain price rigidity or stickiness, which...