Post-Keynesian Economics

Economic Approaches:

Key assumptions and aspects:

Building on older underconsumption theories, Keynesian economics arose during the 1930s in order to explain and develop ideas to solve the economic depression. In doing so, it considerably overlaps with the Stockholm school. Keynesian economics argues that people compare themselves to others and build their decisions partly on rules of thumb and habits, because of psychological reasons and fundamental uncertainty. Effective demand, consumption and investment, therefore depends to a large extent on animal spirits and herd behavior. In the post-war period until the stagflation of the 1970s, it was highly influential, especially its neo-Keynesian (sometimes also called old Keynesian) branch which synthesized Keynes’ ideas with neoclassical microeconomics, this period is therefore often called the neoclassical synthesis. After the 1970s, post-Keynesians (sometimes also called Cambridge Keynesians), who radically broke with neoclassical economics as they constructed a fundamentally new approach to economics with Keynes as main inspiration, became organized as a distinctive heterodox approach. At the same time, new Keynesians introduced imperfections in then influential neoclassical models of new classical macroeconomics, and in doing so came to Keynesian (pro government intervention) rather than new classical (free market) conclusions (but theoretically they are furthest removed from Keynes’ own work and thinking).

Materials: