1This book—an extended version of the first Companion (2002, 405)—presents a wide range of studies falling within Post Keynesian economics, for the main purpose of establishing the basic features of this line of thought. With respect to the previous edition, 43 new entries have been added, dealing, in particular, with some important national traditions of Post Keynesian Economics, the role of financial markets and the crises. New entries are motivated both because of the recent historical facts (such as the current crisis) and the ‘internal’ development of Post Keynesian research (such as a greater emphasis on Econometrics and environmental issues). In the Introduction, it is stressed that Post Keynesian scholars agree on the fact that: i) employment is settled on the basis of expected aggregate demand; ii) a deregulated market economy tends to spontaneously produce unemployment; iii) the interest rate is a monetary phenomenon and there is no ‘natural’ interest rate; iv) the existence of uncertainty is a key feature of the functioning of contemporary monetary economy. On this basis, a long list of very interesting entries aims at providing further theoretical contributions, which provide a significant step forward on the theoretical framework described in the Introduction. These contributions move both within a microeconomic and a macroeconomic perspective, in line with the fact that the Post Keynesian theoretical framework is not confined to the sole study of macroeconomics and economic policy, and that non-neoclassical theories of the consumer and firms exist. It is important to stress that Post Keynesian microeconomics is contrasted to the mainstream individualistic view, where instrumental rationality and full information are assumed, as well as the idea that individuals choose in an institutional vacuum. Post Keynesian scholars, on the other hand, stress that economic agents choose according to the prevailing social (and moral) norms of the group, or class, to which they are affiliated. A preliminary (and extremely relevant) problem arises. As recognized by some of the authors of the entries in this book (see, for instance, Tae-Hae Jo on p. 594), with reference to some important theoretical issue (such as a definitive, complete theory of the Welfare State), Post Keynesian theory is still at an “infant stage”. This is due to a number of factors, which, to my mind, can be summarized as follows.
2One can argue that the dominance of mainstream economics dates back to the ‘victory’ of John Bates Clark in the theoretical disputes with Thorstein Veblen and Institutionalism at the beginning of the 20th century in the U.S. Moreover, due to the increasing political and economic power of that country, the neoclassical framework was received in Europe (as well as in most industrialized countries) as the only scientific way to approach economic issues. This phenomenon was reinforced by i) the progressive refinement of the analytical tools at the basis of the neoclassical models, in accordance with the project of presenting Economics as a science similar – on the methodological plane – to the ‘hard sciences’; ii) the progressive transformation of neoclassical economics in a politically-neutral science, or in a science supporting the interests of the firms funding Universities. In this scenario, ‘heterodox’ economists (including Post Keynesian economists), apart from the short so-called golden age of Keynesian policies, found it even more problematic to defend their scientific legitimacy. The vast majority of University Departments became even more mainstream-oriented, so that “heterodox” scholars found it more difficult to fund their research and to get ahead in their career. As a result, Post Keynesian Economics did not become a theoretical framework based on a set of convictions largely adopted by scholars moving within this ‘paradigm’. In this respect, and compared with neoclassical economics, it is still at an “infant stage”, although this does not imply that—as shown in this Companion—Post Keynesian political economy is silent on the most important micro and macroeconomic issues, nor that it is less relevant (both on the analytical plane and for economic policy purposes) than the mainstream approach.
3The effort that has been put for the publication of this book is highly meritorious and it can be considered a complete encyclopaedia of the current status of the scientific research in the tradition of Keynes. However, some editorial choices are questionable and some important questions are left unanswered.
4Firstly, it is questionable to include “Sraffian Economics”—handled by Gary Mongiovi (499-505)—within the Post Keynesian approach. As Mongiovi recognizes: “There are … genuine differences of perspective”, although he maintains that “these do not render the two traditions incompatible with each other”. By contrast, it can be argued that the main (or maybe the sole) element of compatibility between Sraffian and Post Keynesian Economics lies in the Sraffian theory of interest, which—as known—is a very small part of Production of commodities by means of commodities ( 1975).
5 Secondly, the links between the standard Post Keynesian view and the monetary circuit (or circuit approach) are still being debated. In its basic model, the Monetary Theory of Production (MTP) describes the economic process as a circular sequence of monetary flows, and comes out of a methodological approach based on a continuist reading of Keynes’s major works, in particular of the Treatise on Money ( 1978). The MTP general schema involves three macro-agents: banks, firms and workers. The banking system creates money ex nihilo (in accordance with the idea that loans make deposits); firms buy inputs and produce commodities; workers supply labour power. The circular process of monetary economy starts with the bargaining in the money market between banks and firms. Banks supply firms with initial finance; firms need money in order to buy labour power and to start production. Firms use bank finance to purchase labour power, paying workers the previously negotiated money wages. After the production process has taken place, firms fix the price level, so that real wages are known ex-post. If one considers the basic models of the monetary theory of production (in the tradition of the Italian and French schools), only the views that the interest rate is a monetary phenomenon and that money supply is endogenous appear to be compatible with the Post Keynesian approach, as described in the Introduction to this book. In his work The Monetary Theory of Production (2003), Graziani points out that i) the level of employment depends on firms’ decision on the scale and the composition of output, so that the expected aggregate demand does not play a significant role; ii) real wages are proportional to workers’ bargaining power, which is taken as an institutional given, in conditions where workers can push firms to produce more consumer goods and less investment goods. Uncertainty does not play a crucial role, and his model is a pure macroeconomic model. Otherwise, Graziani himself insists that the MTP should be regarded as a theoretical approach distinct from the Post Keynesian theoretical framework. However, as shown by Realfonzo (87 ff.), the last generation of MTP models explicitly considers uncertainty and the role of aggregate demand in determining the level of employment and output, and, in this respect, current research in the MTP shows more similarities than differences with the Post Keynesian view.
6 This book has two main merits. First, many entries are not only descriptive of the state of things in Post Keynesian Economics, but they add relevant analytical contributions. This is the case, among others, of the entries “Financialization” by Till van Treck and “Wage- and Profit-led Regime” by Eckhard Hein. Second, unlike the mainstream scholars, ‘heterodox’ economists are normally interested in the history of economic thought. In a sense, this is a ‘natural’ outcome of a heterodox perspective, insofar as—according to this line of thought—economics is not a hard science and it does not evolve according to a cumulative pattern. Competitive ‘paradigms’ exist and they ultimately rest on different and incompatible assumptions. Many of the issues contained in this book provide an interesting re-reading of authors of the past and, in this sense, it is recommendable also for historians of Political Economy.