Money and Macrodynamics: Alfred Eichner and Post-Keynesian Economics

217 Pages·2009·3.94 MB·English

by  Marc Lavoie

Money
and
Macrodynamics

Money
and
Macrodynamics
Alfred Eichner and
Post-Keynesian Economics
Marc Lavoie
Louis-Philippe Rochon
Mario Seccareccia
Editors
M.E.Sharpe
Armonk, New York
London, England
Copyright © 2010 by M.E. Sharpe, Inc.
All rights reserved. No part of this book may be reproduced in any form
without written permission from the publisher, M.E. Sharpe, Inc.,
80 Business Park Drive, Armonk, New York 10504.
Library of Congress Cataloging-in-Publication Data
Money and macrodynamics : Alfred Eichner and post-Keynesian economics / edited by
Marc Lavoie, Louis-Philippe Rochon, Mario Seccareccia.
p. cm.
ISBN 978-0-7656-1795-8 (cloth : alk. paper) — ISBN 978-0-7656-1796-5 (pbk. : alk. paper)
1. Eichner, Alfred S. 2. Economics. 3. Keynesian economics. 4. Money. 5. Pricing.
I. Lavoie, M. (Marc) II. Rochon, Louis-Philippe. III. Seccareccia, Mario.
HB171.M5584 2009
339.5'3—dc22 2009002602
Printed in the United States of America
The paper used in this publication meets the minimum requirements of
American National Standard for Information Sciences
Permanence of Paper for Printed Library Materials,
ANSI Z 39.48-1984.
~
IBT (c) 10 9 8 7 6 5 4 3 2 1
IBT (p) 10 9 8 7 6 5 4 3 2 1
Contents
Introduction: Alfred Eichner and the State of
Post-Keynesian Economics vii
Part I. The Link Between Micro and Macro
1. Was Alfred Eichner a System Dynamicist?
Michael J. Radzicki 3
2. Alfred Eichner’s Missing “Complete Model”: A Heterodox
Micro-Macro Model of a Monetary Production Economy
Frederic S. Lee 22
3. Macro Effects of Investment Decisions,
Debt Management, and the Corporate Levy
Elettra Agliardi 43
4. Pricing and Financing of Investment: Is There a
Macroeconomic Basis for Eichnerian Microeconomic Analysis?
Mario Seccareccia 59
Part II. Competition and the Globalized World
5. The Macroeconomics of Competition: Stability and
Growth Questions
Malcolm Sawyer and Nina Shapiro 83
6. The Megacorp in a Global Economy
Matthew Fung 96
7. Pricing and Profits Under Globalized Production:
A Post-Keynesian Perspective on U.S. Economic Hegemony
William Milberg 116
Part III. Credit, Money, and Central Banking
8. Eichner’s Theory of Endogenous Credit-Money
Robert P. Guttmann 139
9. Eichner’s Monetary Economics: Ahead of Its Time
Marc Lavoie 155
10. Alfred Eichner, Post-Keynesians, and Money’s Endogeneity:
Filling in the Horizontalist Black Box
Louis-Philippe Rochon 172
About the Editors and Contributors 187
Index 191
Introduction
Alfred Eichner and the State of
Post-Keynesian Economics
While Alfred S. Eichner is primarily known as the scholar who wrote The
Megacorp and Oligopoly (1976)—a book mainly devoted to showing the link
between growth in capital and research and development expenditures and the
size of the pricing markup—his contribution to the modern post-Keynesian
economics tradition goes much beyond his innovative microeconomic theory.
Besides having helped to build the social network and institutions of post-
Keynesianism in the United States, Eichner integrated in his books and articles
most of the current fundamental or core ideas of post-Keynesian economics,
which he helped to shape. At the same time, perhaps more than any other
post-Keynesian economist of his generation, he recognized the importance
of establishing intellectual links and integrating research pursued by those
in other heterodox currents of thought, especially the institutionalist school,
to which he also adhered.
Alfred Eichner had a relatively short academic career. Although he be-
gan teaching at Columbia in 1962, his post-Keynesian academic path truly
started in 1969 with the publication of his PhD dissertation, The Emergence
of Oligopoly: Sugar Refining as a Case Study, ending less than twenty years
later when he passed away prematurely on February 10, 1988, at the age
of fifty.
Boldly announcing that a new paradigmatic theory was in the making,
Eichner, along with Jan Kregel, wrote the rfi st survey article on post-Keynesian
economics for the Journal of Economic Literature (Eichner and Kregel 1975).
In their seminal article, they identified the key characteristics that came to
be associated with post-Keynesians: the Keynesian reversed causality, in
which investment determines saving; a concern with historical time, tied to
the analysis of growth and cycles; an alternative theory of income distribu-
tion; the importance of considering a monetized production economy; the
role of incomplete information and fundamental uncertainty; the relevance
of imperfect market structures with oligopolies facing near-constant marginal
vii
viii INTRoDUCTIoN
costs. All in all, Eichner and Kregel contrasted post-Keynesian economics to
neoclassical economics by claiming that the purpose of the former was to explain
the real world as it could be observed empirically, rather than to construct
models of an optimal imaginary economy. Calling attention to Leontief’s fa-
mous assertion that the “king is naked” (Leontief 1983, vii), Eichner pointed
to a discipline founded on neoclassical assumptions that was vacuous and
devoid of empirically relevant presuppositions about the world. Economics
was thus in desperate need of an overhaul premised on empirically based,
post-Keynesian theoretical constructs (Eichner 1983a).
As shown by Frederic Lee (2000a, b), Eichner was highly instrumental
in setting up a post-Keynesian school in North America. Eichner devoted
innumerable hours, especially between 1969 and 1981, to organizing and
developing post-Keynesian economics. He organized sessions and dinners
at the American Economic Association annual meetings, wrote a newsletter
to keep social contact with other like-minded economists, compiled an ex-
tensive post-Keynesian bibliography to help out new recruits, set up regular
seminars on post-Keynesian economics, and corresponded extensively with
Joan Robinson to keep her abreast of developments in post-Keynesian econom-
ics in the United States. Moreover, with the help of Paul Davidson and Jan
Kregel, he created for a while a permanent home for post-Keynesian scholars
and students at Rutgers University. In addition, Eichner was a book editor
for M.E. Sharpe Inc., where he promoted the publication of nearly twenty
post-Keynesian or heterodox manuscripts. Eichner must thus be considered a
builder, an architect, and a consensus-seeker as he worked tirelessly to develop
the post-Keynesian “institution.” As such, he should be remembered along
with other post-Keynesians, such as Paul Davidson, who also contributed
to institution-building, especially with the founding of the Journal of Post
Keynesian Economics.
Eichner’s contribution to post-Keynesianism goes far beyond theory and
organizational skills. While it is true that he worked hard at providing an
alternative to neoclassical economics, he saw his role not only as providing
some methodological vigor to post-Keynesian theory, but also as showing
the policy relevance of post-Keynesian views by testifying numerous times
before congressional and other legislative committees. He was convinced
that post-Keynesian theory represented the real world more accurately than
neoclassical theory, which he once called the “valley of darkness” (1983b).
Perhaps more than any other post-Keynesians of his generation, Eichner
not only became a magnet for young researchers seeking new ideas, but also
actively fostered the growth of a new cohort of critical thinkers. Indeed, Eich-
ner, always preoccupied by the future of post-Keynesian theory, wanted to
convince students of all ages to “turn away” from neoclassical economics. For
INTRoDUCTIoN ix
him, it was not sufcfi ient merely to produce papers and models. He worked at
convincing students that there was “something better” to look forward to (1985,
3). Hence, in his classic handbook, A Guide to Post-Keynesian Economics
(1979), he assembled a number of articles written by various prominent authors
of his generation, pieces that had previously appeared in Challenge magazine,
also published by M.E. Sharpe. This book gave younger readers an easy and
inexpensive access to some of the core ideas of post-Keynesian theory.
Alfred Eichner is remembered as an honest, caring man whose dedication to
his students is legendary. He was also extremely friendly with young scholars,
as the two oldest of us can personally attest. The present book serves two pur-
poses: to honor the man and his work, and also to show readers that his work
is just as relevant today as it was when it first appeared—or, perhaps, even
more so. In particular, his monumental work The Macrodynamics of Advanced
Market Economies, left unnfi ished at his death, remains surprisingly accurate,
refreshing, and remarkably relevant. The book was published posthumously
by M.E. Sharpe in 1991, although Eichner had sent out a preliminary version
to about 200 colleagues in December 1987, a few months before his death, in
the hope of getting their feedback and thus improving the final version.
The Economics of Alfred Eichner
Eichner’s deep desire to promote a credible alternative to the deeply flawed
neoclassical theory led him to work assiduously at proposing a complete,
alternative model that would lead us all “toward a new economics.” This
“integrated approach”—his “grand design”—is grounded in a contemporary
setting he called the “corporate economy.” In this new economy, markets are
dominated by large social and economic institutions—“large corporations
or megacorps, industrial trade unions, credit money and the state” (Eichner
1983b, 1985, 1987, 5; Kregel 1990). These institutions have very different
rules and behaviors, which ultimately affect how the economy performs.
Eichner’s ambitious plan, as well as his empirical work dealing with various
blocks of the economy, culminated in The Macrodynamics of Advanced Market
Economies. The book, including some largely ignored chapters on money and
monetary theory, proposes a new paradigm. At the core of Alfred Eichner’s
vision is an attempt to describe the functioning of advanced, money-using,
capitalist economies. This effort demands a complete rejection of neoclas-
sical theory. Influenced by the approach of such prominent post-Keynesian
economists as Luigi Pasinetti, Eichner argues that economic systems consist
of a number of interrelated subsystems, each needing careful attention. This
“systems approach,” according to Eichner, clarifies the study of the dynam-
ics of the overall economic system. In fact, by emphasizing each subsystem,