This chapter brings together a field framework and economic theories linked to growth and innovation, including evolutionary economics. While a field framework can accommodate change, scholars usually invoke it to examine reproduction. These might not always favor innovation, however, as rent-seeking or simply maintaining stability can outweigh perceived opportunities and gains from innovation.
Further, field rules in contemporary Russia are not so kind to innovation, as too many but not all field leaders in the state and business prefer stability, often enough for rent-seeking. To the extent there might be some hope, however, it is with professionalization, especially in arbitration courts. This chapter discusses a conflict theory of inflation—that one driver of inflation is distributional conflicts and it locates roots in conflict partly in the different rules and interests of fields.
Not content to focus on Russian inflation as a phenomenon sui generis, this chapter uses the Russian case to dive into the thorny issue of what causes inflation to begin with. Inefficiencies and rent-seeking, among other practices, are built into existing Russian economic fields, such that competition for rents rather than returns on innovation contributes to inflationary pressures although Protasov is careful not to exclude other usual macroeconomic variables.
While the argument here has more than a passing resemblance to that of Mancur Olson, it does not postulate that distributional conflicts are a function of the quantity of economic associations alone, nor does he pin the blame on unions; rather, he points to fields that have crystallized into informal cartels. This chapter provides an extended commentary on how contemporary Russian fields of finance have become intertwined both with the state and with a new bifurcated ruling class of state and business elites.
8th PKES Summer School - Introduction to Post-Keynesian Economics and Political Economy
The elites of state and business fields use financial institutions and organizations for rent-seeking gain, rather than as a vehicle for profit from serving economic growth and the general population. This chapter also suggests that the political and media fields have been co-opted by state and business elites and drawn into the orbit of their fields: both media and democracy have created a quiescent, tamed population that, if not supporting the elite and their wealth, at least does not have means or expectations to resist the new political economy.
This chapter explores how institutional shocks in the last years of Soviet socialism opened up the environment of institutional fields to reconstruction. This opened the door for confusion and contention over what the operative logics of organizational strategies and structures, the nature of property, and the basis of authority should be. As these classes set about organizing and defending field rules and boundaries, they came into conflict over whose conceptions of normality would predominate.
That conflict was at the heart of the drama of the s and the rise of Vladimir Putin. This chapter suggests that Soviet-era habits and worldviews have persisted, but they have also been reshaped after the s. Rather, they can reproduce rent-seeking or predation and latent conflict. This suggests that the potential for real reform and development faces not only entrenched interests but also entrenched practices and identities—a problem that plagued the USSR in its last decade as well.
Publisher Springer International Publishing. Economic literature: papers , articles , software , chapters , books. Christopher J. Niggle, More about this item Statistics Access and download statistics. Corrections All material on this site has been provided by the respective publishers and authors. Louis Fed.
- Life-Span Human Development, 6th Edition?
- Distributional Conflict and Inflation.
- Income Distribution, Inflation, and Growth.
- Lacrymosa - No. 7 from Requiem K626.
Help us Corrections Found an error or omission? Nevertheless, New Keynesian economics not post-Keynesian economics, is usually what students learn to be modern Keynesianism. PKE seeks to analyse capitalist economies that are characterised by certain distinctive features.
Inflation theory: A critical literature review and a new research agenda
Capitalist economies are monetary production economies in which money credit is advanced by banks or other financial institutions to firms to invest in physical capital and labour to produce goods and services. Those are sold to obtain a profit and to repay the debt plus interest that has been incurred to finance investment. This monetary circuit establishes not only a circular flow of income between the main sectors of the economy, but also links economic units like households, firms or governments, to each other over time through their asset and liability structure.
The capitalist macro-economy thus forms a system that has to be analysed in a systemic way — what happens in one sector of the economy has effects on other sectors, too. Post-Keynesians conceive capitalist economies as highly productive, but unstable and conflictive systems. Economic activity is determined by effective demand , which is typically insufficient to generate full employment and full utilisation of capacity.
Fluctuations in effective demand are mostly due to changes in investment expenditures, which are in turn strongly affected by expectations. Expectations of economic agents are influenced by social conventions and rules of thumb due to fundamental uncertainty about the future. In times of generally optimistic expectations, investment demand may be buoyant and set in motion a phase of strong credit growth, capital accumulation and income generation.
New credit money is created to finance investment expenditures.
- Theoretical and Historical Perspectives?
- JEL Classification System / EconLit Subject Descriptors.
- Full text issues?
- Distributional Conflict And Inflation: Theoretical And Historical Perspectives.
- A New Analytic Tool from Field Theory.
- Russell Rules: 11 Lessons on Leadership From the Twentieth Centurys Greatest Winner?
Then, economic output and employment is determined in the goods market according to the level of investment demand. The money spent on investment appears as income in the deposit accounts of other entrepreneurs or households. A credit-investment-income mechanism is thereby established and investment demand creates corresponding saving.
The income generated through the production of new investment goods stimulates consumption demand. If everything runs well, expectations of agents become validated as payment obligations are met and the economy prospers. PKE thus assumes that there is a potential economic equilibrium that is determined by monetary and real factors. However, sudden changes in expectations may bring the economy out of equilibrium.
Strong boom phases due to optimistic expectations can then be followed by drastic downturns, which are often induced by pessimistic expectations, distributional conflict or financial fragility. This depresses investment and consumption expenditures, invalidates income expectations and induces a period of debt defaults and economic crisis. These boom and bust phases are regarded as systemic features of monetary production economies that can only be mitigated by certain economic institutions and policies that help sustain economic expectations and activity and thereby reduce uncertainty about the future.
In PKE, employment is not determined in the labour market but rather labour demand is determined by aggregate demand in the goods market and not by the real wage rate. However, the labour market determines nominal wages and therefore nominal unit labour costs. These have a strong influence on the general price level and hence inflation, as well as on income distribution. In contrast to orthodox economics, the level of prices is not determined by the level of the money supply in PKE and neither is the rate of inflation determined by the growth rate of money supply.
Therefore, post-Keynesians do not regard inflation as being a monetary phenomenon. Instead, inflation is regarded as the outcome of unresolved distributional conflict. This conflict is caused by conflicting claims over the distribution of income between the main social classes , wage-earners in different industries or sectors, entrepreneurs and rentiers i. For example, if the real wage target of workers or unions is in conflict with the profit target of firms, firms will partly pass through increases in nominal wages to prices, which will lead to inflation if the firms have price setting power.
The pursuit of profit makes capitalism a dynamic system that is usually growing over time due to investment and technical change. However, growth dynamics are regarded as strongly influenced by short-run economic performance which is mainly driven by aggregate demand. The economy is developing in historical time , which means that the past has a persistent effect on the future through path dependency.
Temporary adverse shocks may therefore reduce potential output permanently, just as well as a high unemployment rate might push up the non-accelerating inflation rate of unemployment NAIRU , and the actual growth rate influences the natural rate of growth. Short-run effects, therefore, heavily influence long-run economic development. Although PKE, like most other scientific disciplines, does not provide an elaborated philosophical ontology, its theories do imply presuppositions about the existence and nature of certain entities that make up economic reality.
More concretely, important social structures are social classes e. These social structures form the nature of the capitalist monetary production economy that is the subject matter of post-Keynesian economic analysis.
While post-Keynesians do believe that capitalist economies exhibit certain regularities that are generated by causal mechanisms and that can be captured by economic theories, they conceive of the economy as a dynamic system that is subject to a permanent change in historical time. Therefore, empirical regularities can change as well, so that economic theories cannot be regarded as universal laws. While post-Keynesians certainly agree that social structures are ultimately based on human action, they reject the idea that social structures or macroeconomic phenomena can be reduced to the behaviour of individuals.
On the contrary, individuals always act in a certain institutional context which shapes their beliefs and actions, and connects different classes of agents or types of economic units with each other. Social structures and macroeconomic phenomena may exert causal powers that affect human behaviour, which then in turn determines macro-phenomena. Macro-phenomena and institutions might even exhibit emergent properties that cannot be fully explained by aggregating individual actions. PKE thereby makes stronger ontological commitments than the classical rational choice model, which adheres to a strong ontological individualism that states that the social world is ultimately only composed of individuals and aggregates of individuals, and that nothing other than individual action can exert causal powers.
A very simple analogy to macro properties can be given by the following situation: If everyone in a cinema stands up, nobody improves his or her view of the film, even though if only one person would stand up, this would improve her view. This way of thinking led to the discovery of several macroeconomic paradoxes.
The term paradox in this context means that what might seem reasonable for one single person, firm or state can lead to unintended, adverse or even irrational collective behaviour and outcomes when all individuals, firms or states act in a similar way. It is thus important to study macro-phenomena and their properties in their own right, and to look at how they in turn affect individual behaviour. All of these macroeconomic paradoxes are, for instance, important building blocks of a thorough explanation of the recent financial crisis.
The most important of these paradoxes are summarized in the following table.
When people save, they spend less, therefore businesses realise less revenue and reduce investment. Thereby, aggregate income declines and so does total saving. When everybody saves more out of their income to repay debt, aggregate income declines and leverage ratios rise. A stable economy makes people more optimistic, leading to higher risk taking and higher gross debt-income ratios, which creates instability.
2. Terms, Analysis, Conception of Economy
Again it must first be noted that PKE does not provide a coherent epistemology, and that individual post-Keynesians probably hold very different views about truth, knowledge and the degree to which we can obtain knowledge of economic reality. However, there are some implicit assumptions about the relationship between reality and scientific knowledge that are typical for PKE.
First, post-Keynesians share the view that it is the task of empirical science to collect and systematise statements about the world that should reflect reality as adequately as possible. Although economic models are always a highly simplified representation of actual causal mechanisms, they should ideally capture key aspects of reality as they exist. Second, PKE seems to presuppose that it requires both logical reasoning and empirical observation to construct good economic theories.
Rather than following a pure deductive method starting from, for instance, axioms about supposedly universal rules of human choice and then logically deriving more concrete propositions about empirical phenomena, PKE bases all theoretical assumptions on empirical evidence. However, that does not mean that in PKE all theoretical assumptions are sought to be strictly proven by inductive reasoning, i. Theoretical assumptions should be in line with basic empirical knowledge of actual economic behaviour and phenomena.
On top of that, logical reasoning plays an important role. On a very basic level, this implies a desire for internal consistency of the individual statements of a theory, but also overall coherence. An example may be the link between microeconomic assumptions like competition, pricing and firm behaviour and macroeconomic theory like the determination of functional income distribution, which is the distribution of the GDP to wages and profits.
More specifically, logical reasoning plays an important role in creating economic theories that are consistent with the practice and implications of double-entry bookkeeping and national accounting. Theories that fail to take into account basic accounting identities and their substantive economic consequences are certainly regarded as flawed by post-Keynesians.
Third, post-Keynesians seem to share a certain awareness of the limits to economic knowledge. This is reflected in a certain caution and modesty with respect to the reliability of economic predictions about quantitative variables e. GDP growth or inflation of a dynamic economy that is subject to structural change. In such an economy particular empirical regularities only persist temporarily.
Time for a new perspective on money, inflation and class struggle - The Globe and Mail
Moreover, post-Keynesians do not seek to necessarily cast every relevant assumption or hypothesis into a formal framework, which would claim the possession of a degree of precision that may simply be not attainable due to the qualitative complexity of the respective phenomenon, e. This view can be summarised by the rule of thumb that it is better to be roughly right than precisely wrong.
Predictive success and the highest possible degree of quantitative precision are not regarded as the main objectives of economic theories, as these may not be reconcilable with the qualitatively complex and changing nature of the capitalist economies. Economists should be aware of the limits to economic knowledge and rather work to develop realistic theories that provide an adequate description of actual causal mechanisms and plausible explanations. The general objective of economics in such a view is to tell plausible stories about the functioning of the economic system in the real world starting from stylised facts.
This approach is strongly opposed to the epistemological viewpoint of instrumentalism, which does not care about the degree of reality reflected in core assumptions and only seeks to achieve correct predictions. Accordingly, post-Keynesians advocate for methodological holism. A good example of this organicistic approach is the PK theory of choice, in which consumption or other expenditure decisions i.
Individuals, due to psychological reasons and fundamental uncertainty, compare themselves to others and built their decisions partly on rules of thumb and habits. These forms of group behaviour lie at the heart of post-Keynesian explanations of the recent financial crisis. On the grounds of this social determination of behaviour, post-Keynesian theory emphasizes the role of different classes the main classes being workers, capitalists and rentiers and institutions in society.
This stands in strong objection to the still dominant neoclassical approach of methodological individualism, which requires that every explanation of economic phenomena has to start from individual behaviour. PKE employs research methods that correspond to the principle of holism.
Among others, the most important methods are formal macro modelling and econometric estimation, stock-flow consistent and agent-based modelling employing computer simulations, as well as institutional analyses and case studies. PKs often cast their macroeconomic theories in simple formal models , which describe the causal linkages between macroeconomic variables through structural parameters. The underlying behavioural assumptions, for instance about consumer or firm behaviour, are typically not strictly modelled but justified by stylized facts and knowledge of empirical regularities.
Income inequality, for instance, may enter a PK aggregate consumption function based on empirical studies about consumption behaviour showing that rich households have a lower propensity to consume or that poorer households try to adjust their consumption behaviour to the next higher social income class. These models thus do have microfoundations , but they are not cast in a formal constrained-optimisation-framework. However, unlike neoclassical theory, assumptions about individual behaviour typically involve norm-oriented behaviour that is shaped by social institutions and social contexts.
Simple PK macro models can be static and focus on the marginal effects of changes in exogenous variables on economic outcomes in a goods market equilibrium.