Essays in Honour of A.P. Thirlwall
Edited by Philip Arestis, John S.L. McCombie and Roger Vickerman
Chapter 4: Keynes, Post Keynesian Analysis, and the Open Economies of the Twenty-First Century
4. Keynes, Post Keynesian analysis, and the open economies of the twenty-first century Paul Davidson Introduction It is often said by mainstream economists that Post Keynesian theory’s contribution to economic theory is all negative in that it attacks orthodox (supply side) theory without providing a positive alternative coherent contribution. Moreover, it is claimed that this failure is due to the fact that Post Keynesian theory is based on the closed economy analysis of Keynes’s General Theory, while the real world economies of the 21st century are open to world trade. Keynes might have had some relevance for the developed economies of the mid-20th century that were enmeshed in the Great Depression, but Keynes has little or nothing to offer to the open economies of a globalized economic system of the 21st century. These disparaging statements regarding both Keynes and the Post Keynesian analytical framework are wholly false and merely represent the best barbs that mainstream classical economists, who have been stung by the rapier of Post Keynesian analysis, can muster. Section I of this paper will cite chapter and verse in Keynes’s General Theory where insights and policies are suggested that are relevant today to nations in a globalized economic world. Section II briefly indicates how the orthodox theory of the efficiency of flexible exchange rates fails to meet the test of the facts. Section III focuses on one enormous positive contribution made by Tony Thirlwall that permits the analyst to understand the income effects of world trade, including the...
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