- Elgar original reference
Edited by J.E. King
Much has changed in the decade since the first edition of this Companionwas published. Most obviously, the illusory ‘Great Moderation’ has given way to the ‘Great Recession’ that was produced by the global financial crisis of 2007–8. (Like Karl Marx, I believe that ‘there are no permanent crises’ – only permanent contradictions.) These dramatic events have yet to engender any significant modifications to mainstream macroeconomic theory or any lasting change in macroeconomic policy in the rich, post-industrial economies of the Global North. Quite the reverse: the essentially pre-Keynesian theoretical apparatus of the New Neoclassical Synthesis, which had only recently emerged in 2003, has become much more deeply entrenched among academic economists and is today more dogmatically asserted and more vigorously defended against all fundamental criticism (see Sebastian Dullien’s entry). Who would have thought, even 10 years ago, that a graduate text in macroeconomics could be published by an Ivy League press with no index reference to ‘unemployment’? (The – deeply – offending text is Wickens 2008.) Politically, the only developed nations to swing noticeably to the left in the wake of the global financial crisis have been Denmark and Iceland. Elsewhere the pre-Keynesian shibboleths of sound finance and small government have made a remarkable comeback, sucking in centrists (the Liberal Democrats in England) and former social democrats (in Greece and Spain) as well as traditional conservatives.
Thus the Post Keynesian message is even more important today than it was at the beginning of the century – or, rather, Post Keynesian messages, since in my view Post Keynesianism always was, and remains, a broad church (King 2005 ; see Davidson 2005 for the opposing view). It will be evident from this volume that there are sharp differences of opinion between the contributors on some important issues and a subtle variety of philosophical perspectives and analytical approaches on many others. There is, however, agreement on the fundamentals, beginning with the principle of effective demand: in capitalist economies, output and employment are normally constrained by aggregate demand, not by individual supply behaviour. Since a decision not to have lunch today – as Keynes famously put it – does not entail a decision to have lunch tomorrow, investment drives saving and not the other way round. Moreover, there exists no automatic or even minimally reliable mechanism that will eliminate excess capacity and involuntary unemployment. Interest rates depend p. xvion monetary considerations rather than on the so-called ‘real’ forces of productivity and thrift; there is no ‘natural rate of interest’ to equilibrate investment and saving, so that an increase in the propensity to save will prove self-defeating, resulting in lower output and reduced employment but not in higher levels of saving.
Whatever they may disagree about, Post Keynesians concur in their rejection of the mainstream vision of a capitalist reality in which uncertainty is not inescapable, expectations are not tentative and often unreliable, money does not affect output as well as prices, and demand-deficient unemployment is not the central macroeconomic problem. They repudiate the mainstream notion of the long run as a sort of magic kingdom where the future is knowable (at least probabilistically), expectations are always fulfilled, money has no real significance and resources are fully employed. For Post Keynesians, then, ‘New Keynesian’ macroeconomics is not ‘Keynesian’ at all, in any genuine sense (see Wendy Cornwall’s entry).
All of these issues are covered by entries (often by several entries) in this Companion. Many of them (69 in all) appeared in the first edition and have been more or less extensively revised and updated by their original authors; 43 are new, reflecting both the theoretical and policy challenges that I have referred to and the emergence of a new generation of Post Keynesian scholars, including (I am delighted to report) a significantly larger minority of women contributors. The central theoretical and policy issues that were dealt with in the first edition remain at the core of the book, but there have been some substantial changes. Much more attention is paid in this second edition to financial markets and their reform; a series of entries deals with Post Keynesian economics outside its traditional Anglo-American heartland; and previously neglected themes of gender and environmental policy are now included. A few of the contributors to the first edition were unable to update their entries, which have therefore been omitted. Remarkably, death has claimed only two of the original 83 contributors: John Cornwall, whose entry on ‘Stagflation’ has been revised by Mark Setterfield, and Egon Matzner, whose topic (‘The Third Way’) did not seem worth reviving. This edition is dedicated to them, and to the memory of the great Austrian heterodox economist Kurt Rothschild (1914–2010), who was an inspiration to so many of us.
I am extremely grateful to my hawk-eyed Japanese translator, Shozo Koyama, whose remarkably thorough scrutiny of the first English edition picked up an embarrassingly large number of errors; all, I hope, have now been corrected. I must also acknowledge the helpful comments of Peter Kriesler and Frank Stilwell on my entry on ‘Australia’. Andrew Mearman wishes to thank Victoria Chick and Sheila Dow for comments on his entry; Phil O’Hara acknowledges the assistance of Harry Bloch, John p. xviiKing, Peter Kriesler, Marc Lavoie and Douglas Vickers with his entry; and Gerardo Fujii thanks Armando Román-Zozaya for translating his entry from the original Spanish. The usual disclaimer applies to all of them.