Post Keynesian Monetary Economics

177 Pages·1998·13.826 MB·English

by  Stephen Rousseas (auth.)

POST KEYNESIAN MONETARY ECONOMICS
Also by Stephen Rousseas
THE DEATH OF A DEMOCRACY: Greece and the
American Conscience
MONETARY THEORY
CAPITALISM AND CATASTROPHE: A Critical
Appraisal of the Limits of Capitalism
THE POLITICAL ECONOMY OF REAGANOMICS:
A Critique
Post Keynesian
Monetary Econoinics
Third Edition
Stephen Rousseas
Dexter M. Ferry Jr Emeritus Professor of Economics
Vassar College
New York
Foreword by Alain Parguez
© Stephen Rousseas 1986, 1992, 1998
Foreword © Alain Parguez 1998
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Copyright, Designs and Patents Act 1988.
First edition (M. E. Sharpe) 1986
Second edition (M. E. Sharpe) 1992
Third edition (Macmillan) 1998
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ISBN 978-0-333-72124-7 ISBN 978-1-349-26456-8 (eBook)
DOI 10.1007/978-1-349-26456-8
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To
Zoe Zaneteas
Contents
Foreword by Alain Parguez ix
Preface xi
1 Introduction 1
The rise of neoclassical Keynesianism I
Keynes's early views on the distribution of wealth 3
The distribution of wealth in the General Theory 5
Post Keynesian surplus economics 9
Post Keynesian monetary economics 12
2 The Peculiarity of Money 17
Uncertainty in historical time 17
Keynes on uncertainty 19
Uncertainty and time 20
The peculiarity of money 24
Money and debt 31
The artificial restoration of Say's Law 33
3 The Demand for Money and the Rate of
Interest 37
The exogenous money supply 37
The demand for money within the industrial and
financial sectors 38
The finance motive 45
A formal model of the finance motive 48
The effect of an increase in autonomous
investment 52
The income velocity of money 57
A markup theory of interest rate determination 63
4 The Endogenous Money Supply 75
The quantity theory of money 75
vii
Vlll Contents
The money-income link 80
The income-money link 82
The radcliffe general liquidity thesis 86
5 The Weintraub-Kaldor Models of Endogeneity 91
The Weintraub model of endogeneity 91
The Kaldor model of endogeneity 97
A diagrammatic exposition 101
The velocity component of the endogenous
money supply 105
The postwar behavior of the income velocity
of money 107
An alternative theory of the endogenous
money supply 109
6 The Policy Implications of Post Keynesian
Monetary Theory 117
The unity of theory and praxis 117
The failure of nerve 120
Direct monetary control 124
Selective control proposals 128
The instability of capitalism 133
Some second thoughts 139
Notes and References 145
Bibliography 155
Index 159
Foreword
As a founder and main contributor to the French 'Circuit
School,' which first appeared in the French literature dur
ing the 1970s, I was pleased to find that the Circuit and
American Post Keynesian Schools agree on the role of money
in a capitalist economy that is inherently and fundamen
tally unstable.
Professor Rousseas's book on Post Keynesian Monetary
Economics is much more than just a thorough synthesis of
the Post Keynesian approach in the United States. He shows
that the core of this approach is sometimes clouded by highly
abstract discussions of some arcane technical point, and that,
from the start, some contributors to Post Keynesian theory
have been tempted to advance some simplistic device for
bringing an inherently unstable capitalist economy to a full
and stable state of full employment. Rousseas makes clear
that what is required is a major shift of economic policy in
these times of a major and backward-stepping counterrevo
lution in economic thinking. This book is must reading for
anyone interested in understanding the core theory of capi
talist economics and the scourge of the dramatic and unfet
tered restoration of laissez-faire and don't care economics.
What is of special relevance in this book, for European
readers, is a thorough critique of the argument that inde
pendent central banks can bring a modem economy to a
level of non-inflationary full employment and keep it there
with only minor variations around that point. But they do
not curb capitalist instability; they worsen it.
Paris ALAIN PARGUEZ
ix
Preface
American Post Keynesian monetary economics is far from
settled. What brings Post Keynesians under the same tent
is not their doctrinal coherence but their deep aversion to
neoclassical economics and the bastard Keynesianism that
has come out of it. The main proponents of this school
come armed each with his own bugle. And each bugle has
a different note to sound. And when they all blow on their
bugles at the same time under the same tent, it makes for a
lovely chord. Unfortunately, there is no melody. This book
is a critical overview of some of the central themes of Post
Keynesian economics and attempts to resolve some of the
differences between them.
It bears keeping in mind at the outset, however, that modem
monetary policy in the United States can be said to have
started four years after the March 1951 Treasury-Federal
Reserve Accord - during the 1955-7 expansion when dis
cretionary open market operations were first applied as the
main tool of monetary policy. It is a bit difficult to believe
that monetary policy, as we know it today, has been around
for only 40 years, but it is so and this sober fact should be
kept clearly in mind. The dust has not yet settled.
As things have turned out, postwar monetary theory has
been dominated, after Keynes, by the neoclassical Keynesians
with their IS-LM models of fine-tuning, and the monet
arists who started their rapid climb to dominance in the
1960s. Both regard the money supply as exogenous, but
they disagree over the role of velocity in the working of
monetary policy. And it was during this time that there was
an unprecedented spate of inquiries into the financial struc
ture of Britain and the United States that triggered a new
approach that rejected the neo Keynesian and monetarist
schools and reversed the causal arrow of the quantity theory
of money. The money supply was seen as a function of
nominal income rather than the other way around. What
xi