The Five Strands

The best-known classification of post-Keynesian economists is that of Hamouda and Harcourt (1988). They identify three strands. The first strand is composed of the American post-Keynesians, also called Marshallian post-Keynesians, fundamental post­Keynesians, financial Keynesians, or simply Post Keynesians or even Keynes’s school.

The Sraffian school is discussed elsewhere in this Handbook, therefore little more will be said about it, but it should be noted that several methodologists argue that removing the Sraffians would bring more coherence to post-Keynesianism. This may be so, but there is little doubt that Sraffians are intimately linked with post-Keynesian analysis by tradition and by history. Indeed, as argued by Mata (2004), the post-Keynesian identity and the realization that Cambridge Keynesianism was different from the neoclassical Keynesian synthesis arose in large part as a consequence of the Cambridge capital con­troversies that occurred in the 1960s and early 1970s as a consequence of Sraffa’s work and his critique of neoclassical economics. Secondly, many Sraffians are in close agree­ment with other post-Keynesians on key defining characteristics of post-Keynesianism, such as the causality between investment and saving, the role of effective demand both in the short and the long run, the endogeneity of the money supply, and the need to start from production rather than exchange relationships.

The classification provided above should however be extended by the addition of two strands. Hamouda and Harcourt (1988) wonder where, within their three-way classifica­tion, they should put authors such as Kaldor and Wynne Godley. It seems that adding a fourth strand - the Kaldorians - would greatly simplify the exercise of assigning various well-known post-Keynesian authors to their respective boxes. Finally, in accordance with Arestis (1996), the institutionalist Keynesians constitute a fifth strand inside the post-Keynesian school.

This classification can be epitomized in the determination of a distribution variable - the normal profit rate: fundamentalists would deny its relevance; Kaleckians would argue that it is determined by class struggle or the ability of firms to prevent the entry of rivals; most Sraffians would claim that the interest rate set by the central bank, with some risk premium, determines the normal profit rate; Kaldorians would argue instead that the rate of accumulation is the main determinant of the normal profit rate, along the lines of the Cambridge equation, r = g∕s_p, where s_p is the propensity to save out of profits; finally, Institutionalists would argue that financial norms on rates of return on equity, along with acceptable leverage ratios, imply a normal profit rate in the real sector. Naturally, there is nothing to prevent us from believing that all these factors have an impact on the normal profit rate.

The main concerns of the fundamental post-Keynesians - the first strand - are the description of a monetized production economy with their contracts in money terms, the fragility and instability of the financial system, questions tied to the liquidity preference and the liquidity needs of investors and financial institutions, and the all-crucial notion of radical uncertainty where, as described by George Shackle, any decision modifies the economic environment so that the future is always uncertain.

The Kaleckians - the second strand - besides the three names already mentioned, have as important members authors such as Tom Asimakopulos, Amit Bhaduri, Malcolm Sawyer, Amitava Dutt, Robert Blecker, Steve Fazzari, and Eckhard Hein, to which one could add Robert Rowthorn and Richard Goodwin. Similar to fundamental Keynesians, Kaleckians are concerned with short-run output and employment, but also with business cycles, long-run growth theory, as well as pricing issues, in particular the link between mark-ups and growth, and hence income distribution. The potential conflicts regarding income distribution are an important object of analysis. Another major concern is that of the realization of profit, using here the Marxist expression. An important topic over the past years has been empirical studies devoted to finding out whether economies are wage-led or profit-led, that is, whether a redistribution towards wages and away from profits generates higher output and faster growth. Arestis (1996) associates Kaleckians with the monetary circuit school that has developed in France and Italy, with Alain Parguez and Augusto Graziani at the vanguard, thus supplement­ing the Kaleckian strand with a more obvious monetary element. The Kaleckian strand may also be associated with the Structuralist school, which used to be mainly concerned with economic development, as exemplified by the works of Lance Taylor and Valpy Fitzgerald.

Skipping the Sraffians, we move on to the fourth strand, that of the Kaldorians. This strand is mostly concerned with monetary issues, cumulative causation, and productivity growth. A lot of attention has been devoted to the constraints arising from open economy considerations, such as the balance of payment constraints, or the fundamental identity that links financial private saving, public deficits, and the current account balance - an identity that has been used in work carried out by Wynne Godley and his colleagues, first at the Department of Applied Economics at Cambridge with Francis Cripps and Ken Coutts, and then at the Levy Institute in the USA. Besides Kaldor and Godley, to which one could add John Cornwall and his student Mark Setterfield, the names of John McCombie and Anthony Thirlwall (1994) stand out, as the empirical work of the latter has inspired a large following, especially from Latin America. Also it could be claimed that the modern work being pursued on path dependence, persistence and hysteresis can be traced back to Kaldor’s (1934) remarkable article on unstable equilibria, multiple equilibria and path dependence. Like most Kaleckians, Kaldorians do not hesitate to engage in empirical work, and this has led to an extension of the Cambridge capital con­troversies, through the provision of reductio ad absurdum proofs showing that empiri­cal estimates of neoclassical production function elasticities and of neoclassical labour demand curves are meaningless artefacts. These studies have given support to Kaldor’s earlier claim that neoclassical theorists could only decorate their theories but could not corroborate them.

The fifth and final strand is that of the institutionalist Keynesians. When identify­ing this strand, Arestis (1996: 114) mentions wage and debt contracts, administered prices, conventions, routines, and habits. Sources of inspiration have been Thorstein Veblen, but also John Kenneth Galbraith, who was a founding patron of the Journal of Post Keynesian Economics.

On routines, heuristics, conventions and habits, there is a substantial body of work within behavioural economics or psychological economics which is akin to the concerns and methods of post-Keynesians, getting away from the standard search for small devia­tions from constrained optimization and adopting instead Herbert Simon’s notion of satisficing, with frugal rationality and non-compensatory choice criteria (Earl 1986; Berg and Gigerenzer 2010), something that can also be found in the description of consumer theory of ecological economists (Holt et al. 2009). Within the fifth strand, one would thus also include some works of the French convention school, which has formalized the role of conventions in Keynes’s view of speculation (Orlean 1998). There is also a substantial amount of work, linked to industrial organization, which examines the evolution of corporations as part of a financialization process. This work, which is at the juncture of the Marxist, institutionalist and French Regulation school traditions, has certainly informed post-Keynesian thinking. Indeed, there is clear evidence that at least some members of the Regulation school, such as Robert Boyer, Pascal Petit and Jacques Mazier, were heavily influenced by Cambridge post-Keynesians, so that one could argue that some streams of the Regulation School are part of the institutionalist strand of post-Keynesianism. Finally, the neo-chartalist school, as found in Wray (2012) and now known as modern monetary theory (MMT) on the web, can be considered as part of institutionalist post-Keynesianism, since the neo-chartalists base their policy recommendations on a detailed analysis of monetary institutions and implementation procedures, in particular the functioning of the central bank and of the clearing and set­tlement system.

The identification of these various strands is only indicative. Several eclectic authors - such as Geoffrey Harcourt and Edward Nell - go across all, or at least several, of the identified strands.