Edited by L. Randall Wray and Mathew Forstater
Chapter 17: Analysing and Fighting Recession with Reference to Keynes
17. Analysing and ﬁghting recession with reference to Keynes Claude Gnos1 In recent years New Keynesian writers have commanded the attention of economists and policy-makers by renewing the arguments for government action in favor of demand management. By the same token, they have been credited with restoring the aura of Keynes’s economics. This chapter is aimed at challenging this point of view. It is meant to constitute a ﬁrst stage in a research program the objective of which is to examine just how relevant and effective Keynes’s theory of a ‘monetary economy of production’ – which post Keynesians and Circuitists currently set against the various strands of the neoclassical synthesis – is when it comes to analysing and combating the causes of present-day unemployment. The ﬁrst section is dedicated to showing that the New Keynesian approach to employment is not consistent with Keynes’s theory of employment as characterized by the principle of effective demand.2 The second section focuses on the originality of Keynes’s view on unemployment and the way to cure it. In conclusion, the ﬁnal section insists on the contrast between the two approaches. NEW KEYNESIAN ECONOMICS INCONSISTENT WITH KEYNES’S PRINCIPLE OF EFFECTIVE DEMAND To make our point, we need consider just two main characteristics of New Keynesian economics (NKE) and contrast them with Keynes’s principle of effective demand. First, it should be remembered that NKE appeared in the 1970s in opposition to the emergence of the New Classical economics which assumed continuous market clearing. New Keynesians hold that price and...
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