The Reconstruction of Political Economy: An Introduction to Post-Keynesian Economics PDF
Preview The Reconstruction of Political Economy: An Introduction to Post-Keynesian Economics
THE RECONSTRUCTION OF POLITICAL ECONOMY By the same author RATE OF PROFIT, DISTRIBUTION AND GROWTH: TWO VIEWS THE THEORY OF ECONOMIC GROWTH THEORY OF CAPITAL (forthcoming) The Reconstruction of Political Economy An Introduction to Post-Keynesian Economics J. A. KREGEL with a Foreword by Joan Robinson SECOND EDITION M © J. A. Kregel 1973, 1975 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission. First edition 1973 Reprinted 1974 Second edition 1975 Published by THE MACMILLAN PRESS LTD London and Basingstoke Associated companies in New York Dublin Melbourne Johannesburg and Madras ISBN 978-1-349-81525-8 ISBN 978-1-349-81523-4 (eBook) DOI 10.1007/978-1-349-81523-4 This book is sold subject to the standard conditions of the Net Book Agreement. The paperback edition of this book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired 'Out, or otherwise circulated without the publisher's prior consent in any form of binding or cover other than that in which it is published and without a similar con dition including this condition being imposed on the subsequent purchaser. To my Father Contents List of Figures viii Foreword by Joan Robinson ix Preface to the First Edition xv Preface to the Second Edition XIX Part One 1 Preparing the Way 3 2 Skeletons of the Past 19 3 Definitions and Assumptions 34 Part Two 4 The Basic Model - the Consumption Sector 53 5 The Basic Model - the Capital Goods Sector 68 6 Golden-Age Growth and Neutral Progress 77 7 The Choice of Technique 87 Appendix 94 8 Exercises with the Basic Model 98 Part Three 9 Value, Distribution and Measurement 111 10 An Alternative Pricing Explanation I31 11 Money Variables, Real Variables and Financial Assets 154 12 An Open Economy 172 Part Four 13 Alternative Post-Keynesian Analyses - I 187 14 Alternative Post-Keynesian Analyses - II 194 15 Where Do We Go From Here? 201 Appendix: Taxation and Expenditure by Government 210 References 221 Index 225 List of Figures 7A .l Harcourt's diagram showing capital reversal and double switching for two techniques of production 97 10.1 Price level in the consumption sector 132 10.2 Price level with higher ratio of investment to con- sumption 133 10.3 Pricing for the firm 139 10.4 Pricing at less than full employment 145 Foreword When I came up to Cambridge, in October 1921, and started reading economics, Marshall's Principles was the Bible, and we knew little beyond it. levons, Cournot, even Ricardo, were figures in the footnotes. We heard of 'Pareto's Law', but nothing of the Walrasian general equilibrium system. Sweden was represented by Cassel, America by Irving Fisher, Austria and Germany were scarcely known. Marshall was economics. There is a deep-seated conflict in the Principles, of which Marshall himself was uneasily aware (especially in connection with 'increasing returns') between the analysis, which is purely static, and the con clusions drawn from it, which apply to an economy developing through time, with accumulation going on; but somehow we managed to swallow it all. When I returned to Cambridge.in 1929 and began teaching, Piero Sraffa's lectures were penetrating our insularity. He was calmly committing the sacrilege of pointing out inconsistencies in Marshall, and at the same time revealing that other schools existed (though they were no better). The elders reacted by defending Marshall as best they could, but the younger generation were not convinced by them. The profound inconsistency between the static base and the dynamic superstructure had become too obvious. Professor Pigou, long before, had worked the static element in Marshall's theory into a neat logical scheme. He introduced the concept of the equilibrium size of firms to rescue Marshall from the dilemma between increasing returns and perfect competition. This was being taught as the orthodox interpretation of Marshall, though many points in it were under dispute. Recently I have used Pigou's name as a convenient label for the static element in Marshall and credited Marshall himself with the dynamic element [92]. Perhaps this is too flattering to Marshall. Both elements were present in his thinking and he showed great agility in appealing, in each context, to whichever would best suit his purpose of presenting a mollifying picture of the private-enter prise economy. x The Reconstruction of Political Economy I worked out a theory of imperfect competition, inspired by Sraffa's article (published in English in Economic Journal, December 1926) on 'The Laws of Returns under Competitive Conditions', against the background of Pigou's static analysis. My aim was to attack the internal logic of the theory of static equilibrium and to refute, by means of its own arguments, the doctrine that wages are determined by the marginal productivity of labour. Meanwhile a much more powerful attack on equilibrium theory was being mounted by Keynes. It was obvious enough in real life that a free market does not guarantee equilibrium, for the world economy had fallen into the great slump, but it took a long time to find out where the mistake lay in the theory and to sketch out a new approach. Unbeknownst to us, Michal Kalecki, writing in Polish, evinced the same solution, in the main, as Keynes. His version of the General Theory of Employment was less rich than Keynes's but in some respects more coherent. He brought imperfect com petition into line with the analysis of effective demand and laid the basis for what is nowadays called the 'Cambridge' theory of distribution. In 1940, as a distraction from the news, I began to read Marx. Seeing Capital in the light of the Keynesian revolution, I found much in it that the professed Marxist seemed to have overlooked. They had replied to Keynes with the slogans of sound finance and the gold standard. Only Kalecki had seen the point of the schema of expanded reproduction in Volume II of Capital and he had built a 'Keynesian' theory on them. For me, the main message of Marx was the need to think in terms of history, not of equilibrium. This, of course, was the message of the Keynesian revolution too, but I had applied it only in short-period terms. I had been so much under the influence of Pigou's methodology that I had written a 'Long period Theory of Employment' in terms of comparisons of stationary states with different rates of interest. Now I began to catch a glimpse of an approach that would emancipate us from the dominance of equilibrium analysis. As for the labour theory of value, I could not make out what the fuss was about. It seemed obvious that the transformation problem, that is, finding a system of prices yielding a uniform rate of profit for all capitalists, was just a puzzle (though it was not solved till Sraffa showed the way). Nothing of importance could tum on it.
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