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What is Post-Keynesian Economics?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 14 September 2016
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Post-Keynesian economics is a loosely defined school of economic thought that attempts to build upon the work of British economist John Maynard Keynes. Keynes' economic theories became very popular in the middle of the 20th century, as his proposals that economic adjustments need to be made by governments to help flagging economies flew in the face of the neoclassical economic notion of equilibrium. The notion of post-Keynesian economics grew out of this initial schism, but also arose from the fact that many felt that Keynes' work was being misinterpreted. Although it is a relatively malleable movement, the post-Keynesian followers generally agree on the need to adjust economic policies based on real-world events rather on any preconceived notions of how the economy should ideally play out.

The difficulty in understanding post-Keynesian economics is that there isn't really a uniform school of thought among its many practitioners. In fact, one of the tenets of the theory is that there may not be any one definitive solution. Some post-Keynesians have postulated that the practices that work for one nation's economy might be entirely unsuitable for another, even if their current predicament is similar.

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In a way, that uncertainty is at the heart of the post-Keynesian movement. The point of the movement is that the basic neoclassical economic theory that free markets will ebb and flow and eventually balance themselves out over time is simply unrealistic given the many variables that exist in the modern world. These variables need to be taken into consideration, according to post-Keynesians, and aggressive action may need to be taken to correct course in response to these variables.

Hence, there is no automatic economic equilibrium, because those who make decisions within economies rely on past history to form their opinions. The expectations of these decision makers also play a large part in determining how an economy will develop. In this way, post-Keynesian economics aligns itself directly with Keynes, who theorized how alternative methods needed to be examined and perhaps instituted in response to an uncertain future.

Another unifying feature of post-Keynesian economics is that it puts a heavy focus on the role of institutions within a society in determining the economic climate. Whereas neoclassical economics often mitigates the importance of institutions, both political and financial, in favor of the individuals within a society, most post-Keynesians believe that such a model is naive in the complex modern world. As a result, they believe that such institutions hold great power over the economy and, if need be, should wield that power in the form of either income or investment policies that stimulate economic growth.

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Terrificli
Post 2

@Melonlity -- there are still classical Keynesian economists who claim the theory is broad enough to embrace government involvement. There is some evidence they are correct.

Still, it is always a good idea to rethink economic thought. It is not an exact science, after all, so refinements and improvements to prevailing theories are necessary.

Melonlity
Post 1

It is very encouraging to see economists rethinking Keynesian principals in light of the modern world. The flaw in Keynesian theories in this day and age is that it discounts the influence of government policies on the economy.

What nations these days truly feature a free market economy? Government institutions are often called on to take actions that greatly influence the economy. While Keynes did call on the government to take action to influence the economy, it is doubtful he could have foreseen the scale at which governments are currently involved in economic matters.

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