Post-Keynesian economics is a school of economic thought with its origins in The General Theory of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Weintraub, Paul Davidson, Piero Sraffa and Jan Kregel. Historian Robert Skidelsky argues that the post-Keynesian school has remained closest to the spirit of Keynes' original work.
The term post-Keynesian was first used to refer to a distinct school of economic thought by Eichner and Kregel (1975) and by the establishment of the Journal of Post Keynesian Economics in 1978. Prior to 1975, and occasionally in more recent work, post-Keynesian could simply mean economics carried out after 1936, the date of Keynes's General Theory.
Post-Keynesian economists are united in maintaining that Keynes' theory is seriously misrepresented by the two other principal Keynesian schools: neo-Keynesian economics, which was orthodox in the 1950s and 60s, and new Keynesian economics, which together with various strands of neoclassical economics has been dominant in mainstream macroeconomics since the 1980s. Post-Keynesian economics can be seen as an attempt to rebuild economic theory in the light of Keynes' ideas and insights. However, even in the early years, post-Keynesians such as Joan Robinson sought to distance themselves from Keynes and much current post-Keynesian thought cannot be found in Keynes. Some post-Keynesians took a more progressive view than Keynes himself, with greater emphases on worker-friendly policies and redistribution. Robinson, Paul Davidson and Hyman Minsky emphasized the effects on the economy of practical differences between different types of investments, in contrast to Keynes' more abstract treatment.
The theoretical foundation of post-Keynesian economics is the principle of effective demand, that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment. Contrary to the views of new Keynesian economists working in the neoclassical tradition, post-Keynesians do not accept that the theoretical basis of the market's failure to provide full employment is rigid or sticky prices or wages. Post-Keynesians typically reject the IS–LM model of John Hicks, which is very influential in neo-Keynesian economics.
The contribution of post-Keynesian economics has extended beyond the theory of aggregate employment to theories of income distribution, growth, trade and development in which money demand plays a key role, whereas in neoclassical economics these are determined by the forces of technology, preferences and endowment. In the field of monetary theory, post-Keynesian economists were among the first to emphasise that money supply responds to the demand for bank credit, so that a central bank cannot control the quantity of money, but only manage the interest rate by managing the quantity of monetary reserves.
This view has largely been incorporated into monetary policy, which now targets the interest rate as an instrument, rather than the quantity of money. In the field of finance, Hyman Minsky put forward a theory of financial crisis based on financial fragility, which has received renewed attention.
There are a number of strands to post-Keynesian theory with different emphases. Joan Robinson regarded Michał Kalecki’s theory of effective demand to be superior to Keynes’ theories. Kalecki's theory is based on a class division between workers and capitalists and imperfect competition. Robinson also led the critique of the use of aggregate production functions based on homogeneous capital – the Cambridge capital controversy – winning the argument but not the battle. The writings of Piero Sraffa were a significant influence on the post-Keynesian position in this debate, though Sraffa and his neo-Ricardian followers drew more inspiration from David Ricardo than Keynes. Much of Nicholas Kaldor’s work was based on the ideas of increasing returns to scale, path dependency, and the key differences between the primary and industrial sectors.
Paul Davidson follows Keynes closely in placing time and uncertainty at the centre of theory, from which flow the nature of money and of a monetary economy. Monetary circuit theory, originally developed in continental Europe, places particular emphasis on the distinctive role of money as means of payment. Each of these strands continues to see further development by later generations of economists.
Modern Monetary Theory is a relatively recent offshoot influenced by the macroeconomic modelling of Wynne Godley and Hyman Minsky's ideas on the labour market, as well as chartalism and functional finance.
Much post-Keynesian research is published in the Review of Keynesian Economics (ROKE), the Journal of Post Keynesian Economics (founded by Sidney Weintraub and Paul Davidson), the Cambridge Journal of Economics, the Review of Political Economy, and the Journal of Economic Issues (JEI).
There is also a UK academic association, the Post Keynesian Economics Study Group (PKSG).
In the United States, there are several universities with a post-Keynesian bent:
In Canada, post-Keynesians can be found at the University of Ottawa and Laurentian University.
In Germany, post-Keynesianism is very strong at the Berlin School of Economics and Law and its master's degree course: International Economics [M.A.]. Many German Post-Keynesians are organized in the Forum Macroeconomics and Macroeconomic Policies.
University of Newcastle
The University of Newcastle in New South Wales, Australia, houses the Centre of Full Employment and Equity (CofFEE), an active educational, research and collaborative organisation whose focus is on policies "restoring full employment" and achieving an economy that delivers "equitable outcomes for all". CofFEE's work is on post-Keynesian macroeconomics, labour economics, regional development and monetary economics. Research conducted by CofFEE is aimed at developing a model for new global economy that achieves full employment without the consequences imposed by the dominant neoliberal economic policies.
Major post-Keynesian economists
Main article: List of Post-Keynesian economists
See also: Category:Post-Keynesian economists
Major post-Keynesian economists of the first and second generations after Keynes include:
- Arestis, Philip (1996). "Post-Keynesian economics: towards coherence". Cambridge Journal of Economics. 20: 111–135. doi:10.1093/oxfordjournals.cje.a013604.
- Davidson, Paul (2007). John Maynard Keynes. Palgrave Macmillan.
- Eichner and Kregel (1975). "An Essay on Post-Keynesian Theory: A New Paradigm in Economics". Journal of Economic Literature. 13: 1293–1314.
- Harcourt, Geoff (2006). The Structure of Post-Keynesian Economics. Columbia University Press.
- Hayes, M.G. (2008). The Economics of Keynes: A New Guide to the General Theory. Edward Elgar Publishing. ISBN 978-1-84844-056-2.
- Kaldor, Nicholas (1980). "Monetarism and UK economic policy". Cambridge Journal of Economics. 4: 271–292. doi:10.1093/oxfordjournals.cje.a035457.
- King, J.E. (2002). A history of post Keynesian economics since 1936. Edward Elgar Publishing. ISBN 978-1-84064-420-3.
- Minsky, Hyman (1975). John Maynard Keynes. Columbia University Press.
- Pasinetti, Luigi (2007). Keynes and the Cambridge Keynesians. Columbia University Press.
- Robinson, Joan; Eatwell, John (1974). An Introduction to Modern Economics (2 ed.). McGraw Hill.
- Skidelsky, Robert (2009). Keynes: The Return of the Master. Allen Lane. p. 42. ISBN 978-1-84614-258-1.
- Holt, Ric; Pressman, Steven (2001). A New Guide to Post Keynesian Economics. Routledge.
- Holt, Ric; Pressman, Steven (2006). Empirical Post Keynesian Economics: Looking at the Real World. M.E. Sharpe.
For other people named Adam Smith, see Adam Smith (disambiguation).
|Born||16 June 1723 NS|
(5 June 1723 OS)
Kirkcaldy, Fife, Scotland
|Died||17 July 1790(1790-07-17) (aged 67)|
|Alma mater||University of Glasgow|
Balliol College, Oxford
|Notable work||The Wealth of Nations|
The Theory of Moral Sentiments
|Political philosophy, ethics, economics|
modern free market,
division of labour,
the "invisible hand"
Adam SmithFRSA (16 June 1723 NS(5 June 1723 OS) – 17 July 1790) was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment era. Smith is best known for two classic works: An Inquiry into the Nature and Causes of the Wealth of Nations (1776) and The Theory of Moral Sentiments (1759). The former, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics.
Smith studied social philosophy at the University of Glasgow and at Balliol College, Oxford, where he was one of the first students to benefit from scholarships set up by fellow Scot, John Snell. After graduating, he delivered a successful series of public lectures at Edinburgh, leading him to collaborate with David Hume during the Scottish Enlightenment. Smith obtained a professorship at Glasgow teaching moral philosophy and during this time wrote and published The Theory of Moral Sentiments. In his later life, he took a tutoring position that allowed him to travel throughout Europe, where he met other intellectual leaders of his day.
Smith laid the foundations of classical free market economic theory. The Wealth of Nations was a precursor to the modern academic discipline of economics. In this and other works, he developed the concept of division of labour and expounded upon how rational self-interest and competition can lead to economic prosperity. Smith was controversial in his own day and his general approach and writing style were often satirised by Tory writers in the moralising tradition of William Hogarth and Jonathan Swift. In 2005, The Wealth of Nations was named among the 100 Best Scottish Books of all time. The minor planet 12838 Adamsmith was named in his memory.
Smith was born in Kirkcaldy, in the County of Fife, Scotland. His father, also Adam Smith, was a Scottish Writer to the Signet (senior solicitor), advocate and prosecutor (Judge Advocate) and also served as comptroller of the Customs in Kirkcaldy. In 1720, he married Margaret Douglas, daughter of the landed Robert Douglas of Strathendry, also in Fife. His father died two months after he was born, leaving his mother a widow. The date of Smith's baptism into the Church of Scotland at Kirkcaldy was 5 June 1723 and this has often been treated as if it were also his date of birth, which is unknown. Although few events in Smith's early childhood are known, the Scottish journalist John Rae, Smith's biographer, recorded that Smith was abducted by gypsies at the age of three and released when others went to rescue him.[N 1] Smith was close to his mother, who probably encouraged him to pursue his scholarly ambitions. He attended the Burgh School of Kirkcaldy—characterised by Rae as "one of the best secondary schools of Scotland at that period"—from 1729 to 1737, he learned Latin, mathematics, history, and writing.
Smith entered the University of Glasgow when he was fourteen and studied moral philosophy under Francis Hutcheson. Here, Smith developed his passion for liberty, reason and free speech. In 1740, Smith was the graduate scholar presented to undertake postgraduate studies at Balliol College, Oxford, under the Snell Exhibition.
Smith considered the teaching at Glasgow to be far superior to that at Oxford, which he found intellectually stifling. In Book V, Chapter II of The Wealth of Nations, Smith wrote: "In the University of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching." Smith is also reported to have complained to friends that Oxford officials once discovered him reading a copy of David Hume's Treatise on Human Nature, and they subsequently confiscated his book and punished him severely for reading it. According to William Robert Scott, "The Oxford of [Smith's] time gave little if any help towards what was to be his lifework." Nevertheless, Smith took the opportunity while at Oxford to teach himself several subjects by reading many books from the shelves of the large Bodleian Library. When Smith was not studying on his own, his time at Oxford was not a happy one, according to his letters. Near the end of his time there, Smith began suffering from shaking fits, probably the symptoms of a nervous breakdown. He left Oxford University in 1746, before his scholarship ended.
In Book V of The Wealth of Nations, Smith comments on the low quality of instruction and the meager intellectual activity at English universities, when compared to their Scottish counterparts. He attributes this both to the rich endowments of the colleges at Oxford and Cambridge, which made the income of professors independent of their ability to attract students, and to the fact that distinguished men of letters could make an even more comfortable living as ministers of the Church of England.
Smith's discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow, Francis Hutcheson. Hutcheson was well regarded as one of the most prominent lecturers at the University of Glasgow in his day and earned the approbation of students, colleagues, and even ordinary residents with the fervor and earnestness of his orations (which he sometimes opened to the public). His lectures endeavoured not merely to teach philosophy but to make his students embody that philosophy in their lives, appropriately acquiring the epithet, the preacher of philosophy. Unlike Smith, Hutcheson was not a system builder; rather it was his magnetic personality and method of lecturing that so influenced his students and caused the greatest of those to reverentially refer to him as "the never to be forgotten Hutcheson"—a title that Smith in all his correspondence used to describe only two people, his good friend David Hume and influential mentor Francis Hutcheson.
Smith began delivering public lectures in 1748 in Edinburgh, sponsored by the Philosophical Society of Edinburgh under the patronage of Lord Kames. His lecture topics included rhetoric and belles-lettres, and later the subject of "the progress of opulence". On this latter topic he first expounded his economic philosophy of "the obvious and simple system of natural liberty". While Smith was not adept at public speaking, his lectures met with success.
In 1750, Smith met the philosopher David Hume, who was his senior by more than a decade. In their writings covering history, politics, philosophy, economics and religion, Smith and Hume shared closer intellectual and personal bonds than with other important figures of the Scottish Enlightenment.
In 1751, Smith earned a professorship at Glasgow University teaching logic courses, and in 1752 he was elected a member of the Philosophical Society of Edinburgh, having been introduced to the society by Lord Kames. When the head of Moral Philosophy in Glasgow died the next year, Smith took over the position. He worked as an academic for the next thirteen years, which he characterised as "by far the most useful and therefore by far the happiest and most honorable period [of his life]".
Smith published The Theory of Moral Sentiments in 1759, embodying some of his Glasgow lectures. This work was concerned with how human morality depends on sympathy between agent and spectator, or the individual and other members of society. Smith defined "mutual sympathy" as the basis of moral sentiments. He based his explanation, not on a special "moral sense" as the Third Lord Shaftesbury and Hutcheson had done, nor on utility as Hume did, but on mutual sympathy, a term best captured in modern parlance by the twentieth-century concept of empathy, the capacity to recognise feelings that are being experienced by another being.
Following the publication of The Theory of Moral Sentiments, Smith became so popular that many wealthy students left their schools in other countries to enroll at Glasgow to learn under Smith. After the publication of The Theory of Moral Sentiments, Smith began to give more attention to jurisprudence and economics in his lectures and less to his theories of morals. For example, Smith lectured that the cause of increase in national wealth is labour, rather than the nation's quantity of gold or silver, which is the basis for mercantilism, the economic theory that dominated Western European economic policies at the time.
In 1762, the University of Glasgow conferred on Smith the title of Doctor of Laws (LL.D.). At the end of 1763, he obtained an offer from Charles Townshend—who had been introduced to Smith by David Hume—to tutor his stepson, Henry Scott, the young Duke of Buccleuch. Smith then resigned from his professorship to take the tutoring position. He subsequently attempted to return the fees he had collected from his students because he resigned in the middle of the term, but his students refused.
Tutoring and travels
Smith's tutoring job entailed touring Europe with Scott, during which time he educated Scott on a variety of subjects—such as etiquette and manners. He was paid £300 per year (plus expenses) along with a £300 per year pension; roughly twice his former income as a teacher. Smith first travelled as a tutor to Toulouse, France, where he stayed for one and a half years. According to his own account, he found Toulouse to be somewhat boring, having written to Hume that he "had begun to write a book to pass away the time". After touring the south of France, the group moved to Geneva, where Smith met with the philosopher Voltaire.
From Geneva, the party moved to Paris. Here Smith came to know several great intellectual leaders of the time; invariably having an effect on his future works. This list included: Benjamin Franklin,Turgot, Jean D'Alembert, André Morellet, Helvétius, and, notably, François Quesnay, the head of the Physiocratic school. Smith was so impressed with his ideas that he might have dedicated The Wealth of Nations to Quesnay had he not died beforehand. Physiocrats were opposed to mercantilism, the dominating economic theory of the time. Illustrated in their motto Laissez faire et laissez passer, le monde va de lui même! (Let do and let pass, the world goes on by itself!). They were also known to have declared that only agricultural activity produced real wealth; merchants and industrialists (manufacturers) did not. However, this did not represent their true school of thought, but was a mere "smoke screen" manufactured to hide their actual criticisms of the nobility and church; arguing that they made up the only real clients of merchants.
The wealth of France was virtually destroyed by Louis XIV and Louis XV in ruinous wars, by aiding the American insurgents against the British, and perhaps most destructive (in terms of public perceptions) was what was seen as the excessive consumption of goods and services deemed to have no economic contribution—unproductive labour. Assuming that nobility and church are essentially detractors from economic growth, the feudal system of agriculture in France was the only sector important to maintain the wealth of the nation. Given that the English economy of the day yielded an income distribution that stood in contrast to that which existed in France, Smith concluded that the teachings and beliefs of Physiocrats were, "with all [their] imperfections [perhaps], the nearest approximation to the truth that has yet been published upon the subject of political economy". The distinction between productive versus unproductive labour—the physiocratic classe steril—was a predominant issue in the development and understanding of what would become classical economic theory.
In 1766, Henry Scott's younger brother died in Paris, and Smith's tour as a tutor ended shortly thereafter. Smith returned home that year to Kirkcaldy, and he devoted much of the next ten years to his magnum opus. There he befriended Henry Moyes, a young blind man who showed precocious aptitude. As well as teaching Moyes, Smith secured the patronage of David Hume and Thomas Reid in the young man's education. In May 1773, Smith was elected fellow of the Royal Society of London, and was elected a member of the Literary Club in 1775. The Wealth of Nations was published in 1776 and was an instant success, selling out its first edition in only six months.
In 1778, Smith was appointed to a post as commissioner of customs in Scotland and went to live with his mother in Panmure House in Edinburgh's Canongate. Five years later, as a member of the Philosophical Society of Edinburgh when it received its royal charter, he automatically became one of the founding members of the Royal Society of Edinburgh, and from 1787 to 1789 he occupied the honorary position of Lord Rector of the University of Glasgow.
Smith died in the northern wing of Panmure House in Edinburgh on 17 July 1790 after a painful illness. His body was buried in the Canongate Kirkyard. On his death bed, Smith expressed disappointment that he had not achieved more.
Smith's literary executors were two friends from the Scottish academic world: the physicist and chemist Joseph Black, and the pioneering geologist James Hutton. Smith left behind many notes and some unpublished material, but gave instructions to destroy anything that was not fit for publication. He mentioned an early unpublished History of Astronomy as probably suitable, and it duly appeared in 1795, along with other material such as Essays on Philosophical Subjects.
Smith's library went by his will to David Douglas, Lord Reston (son of his cousin Colonel Robert Douglas of Strathendry, Fife), who lived with Smith. It was eventually divided between his two surviving children, Cecilia Margaret (Mrs. Cunningham) and David Anne (Mrs. Bannerman). On the death of her husband, the Reverend W. B. Cunningham of Prestonpans in 1878, Mrs. Cunningham sold some of the books. The remainder passed to her son, Professor Robert Oliver Cunningham of Queen's College, Belfast, who presented a part to the library of Queen's College. After his death the remaining books were sold. On the death of Mrs. Bannerman in 1879, her portion of the library went intact to the New College (of the Free Church) in Edinburgh and the collection was transferred to the University of Edinburgh Main Library in 1972.
Personality and beliefs
Not much is known about Smith's personal views beyond what can be deduced from his published articles. His personal papers were destroyed after his death at his request. He never married, and seems to have maintained a close relationship with his mother, whom he lived with after his return from France and who died six years before his own death.
Smith was described by several of his contemporaries and biographers as comically absent-minded, with peculiar habits of speech and gait, and a smile of "inexpressible benignity". He was known to talk to himself, a habit that began during his childhood when he would smile in rapt conversation with invisible companions. He also had occasional spells of imaginary illness, and he is reported to have had books and papers placed in tall stacks in his study. According to one story, Smith took Charles Townshend on a tour of a tanning factory, and while discussing free trade, Smith walked into a huge tanning pit from which he needed help to escape. He is also said to have put bread and butter into a teapot, drunk the concoction, and declared it to be the worst cup of tea he ever had. According to another account, Smith distractedly went out walking in his nightgown and ended up 15 miles (24 km) outside of town, before nearby church bells brought him back to reality.
James Boswell who was a student of Smith's at Glasgow University, and later knew him at the Literary Club, says that Smith thought that speaking about his ideas in conversation might reduce the sale of his books, and so his conversation was unimpressive. According to Boswell, he once told Sir Joshua Reynolds that 'he made it a rule when in company never to talk of what he understood'.