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The two most basic non-metaphysical materials used by economists to erect their theoretical structures are prices and quantifies. Two visions of reality are contrasted: (a) that in which historical price determination is explained without reference to demand (Sraffa), and (b) that in which the determination of quantities in historical time is explained without explicit reference to supply (Keynes). In the neoclassical vision of reality, prices and quantities are simultaneously determined by both demand and supply in logical time. It is then argued that the "post-keynesian" appellation is misleading. What is needed is a truly post-classical approach based on the works of Keynes, Sraffa and Marx.
The author argues that there are six key assumptions — although they are at very different levels — on which the General Theory depends. These assumptions are: (i) unemployment is the norm; (ii) there is broad price stability; (iii) the money supply is quite inelastic; (iv) the capital stock and techniques are given; (v) the population is not growing substantially; and (vi) the capital stock is 'inadequate'. These six assumptions are all grounded in the British world of the interwar period that Keynes was looking at. Had the General Theory been written against the American background of the interwar or even the postwar periods, its assumptions would have looked purely analytical, instead of both analytical and empirically relevant.
Keynes' General Theory of Employment, Interest and Money and Sraffa's Production of Commodities by Means of Commodities were concerned with different problems, and this is reflected in the structure of the models they used. Keynes was concerned with the factors determining the level of employment in a particular period of time — a short period — and the ways in which that level of employment could be thanged over a sequence of these short periods. There is great scope for disappointment of expectations and uncertainty in his analysis — it is not tied in any way to long-period equilibrium. Sraffa's analysis was concerned with highly abstract theoretical questions — the value nature of capital and the lack of logical foundations for any marginal productivity theory of distribution that treats aggregate capital as an input. For this purpose, an analysis solely concerned with long-period equilibrium situations is not inappropriate. In these works there is no meeting ground between Sraffa and Keynes. The joining of the two analyses — except as a very special case in which entrepreneurial investment-expectations turned out to be validated by events — would distort seriously the nature of Keynes' analysis.
It has been claimed, on the one hand, that Sraffa has successfully resolved some of the theoretical problems that Ricardo had tackled without success and, on the other hand, that Sraffa offered valid solutions to another set of theoretical problems that Marx incorrectly thought he had solved, in particular the famous "transformation problem". What is exactly the basis for such claims, especially the latter?
The author traces the various stages in the development of a viable measure of the net product. Beginning with Petty's seminal exposition of the problem, the paper then analyzes the Physiocratic fixed-price composite-commodity measure, the Smith-Keynes 'labour command' approach, and the Ricardo-Sraffa 'standard commodity' method of defining the net product. Although being the most accurate of the various techniques, the author concludes that Sraffa's method did not solve all the measurement problems raised by the classical economists.
This paper combines a critical review of the current state of the theory of economic growth with some suggestions for new directions in growth theory. The development of the neoclassical theory of growth and distribution is surveyed, with emphasis on the distribution theory of J.B. Clark, the regression analysis of C.W. Cobb and P.H. Douglas, the growth accounting of R.M. Solow and E.F. Denison, and the reswitching controversy, involving critical contributions by Joan Robinson, Piero Sraffa, and Luigi Pasinetti. Neoclassical growth models, including vintage models, are based on the theoretical separation of investment and technical change, which leads to the curious conclusion that investment is not a central part of the growth process. Post-Keynesian growth models, such as those of Nicholas Kaldor and John Cornwall, deny that such a separation is theoretically or empirically meaningful, and instead put investment at the heart of the growth process. The paper constructs a growth model along post-Keynesian lines, in which the growth rate, the distribution of income, and the normal unemployment rate are endogenous functions of the propensity to invest.
This paper attempts to identify the peculiar aspects of post-Keynesian monetary theory. In a modern production economy, the growth of the stock of money is an essentially endogenous process. It results from the Financial needs of firms to pay out incomes to households. It follows that monetary policy is asymmetrical: central banks cannot increase the rate of growth of the money supply, they can only restrain it. Hence, inflation is never and nowhere a monetary phenomenon.
The paper argues that post-Keynesian theory has reached a third stage in its development, that of empirically validating its arguments. The failure of the alternative neoclassical paradigm to meet any of the necessary empirical tests — the correspondence, comprehensiveness, parsimony and praxis tests in particular — is first pointed out. The methodological pitfalls which post-Keynesian theory must guard against if it is to avoid the same result are then indicated. From this line of argument emerges the imminent research agenda if post-Keynesian theory is eventually to place economics on a scientific basis by developing a body of theory which can be both empirically validated and conducive to further empirical research.