Post-Keynesian Theory Revisited by Iannizzotto Matteo;

Author:Iannizzotto, Matteo;
Language: eng
Format: epub
Publisher: Agenda Publishing

Conclusion

It may seem that in discussing these points we have moved a long way away from the central theme of a monetary economy. A simple interpretation of the above may be that the existence of temporary idle balances in cash form prevents the attainment of full employment equilibrium, but that such disturbances are ultimately going to disappear as the retained cash is ultimately spent. That is misleading and false, however. Individual savings may indeed end up being spent but the saving of the economy as a whole never is in its entirety. This is yet another instance of the fallacy of composition against which post-Keynesian theory argues: the whole is more than the sum of its parts, and myopically focusing on the micro problem will never capture what the macro one actually is.

What the above implies is that the crucial variable the behaviour of which needs to be modelled in order to understand where the economy comes to rest is investment. This is the causa causans of the entire process, and a detailed examination of its determinants will inevitably lead us back to the quintessentially monetary nature of the economy.

The reason for this is neatly encapsulated in a single word: time. Production takes time, and investment in capital equipment most emphatically, because capital is a durable good that does not disappear from one period to the next but carries over, so that an addition to it, in flow terms, has to be understood by considering what its existing stock is at any point of time. But time inevitably brings into the picture one of the classical functions of money: that of a store of value. It is, as Keynes puts it, “a subtle device for linking the present to the future” (Keynes 1936: 294) ‒ a future, needless to say, that is forever unknown and unknowable and therefore uncertain.

According to Marshall (see Landreth & Colander 1994: chap. 11), time was one of the most difficult issues in economics and one of the lines of enquiry of his theory that resurfaces, enhanced and given pride of place, in the works of his one-time pupil, Keynes, and his post-Keynesian followers. And it should also be stressed how much this constitutes a radical departure from the foundations of mainstream economics, which are primarily Walrasian. The general equilibrium of the economy in Léon Walras’ system is inescapably timeless because everything must happen all at once, as necessitated by the equilibrium being defined as the outcome of a system of simultaneous equations. And “simultaneous” implies that the time dimension is assumed away at the outset. So, it is to investment and the time dimension that we now turn.

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