We are all Keynesians now

Mathew Forstater forstate at levy.org
Fri Jun 5 18:08:38 PDT 1998


In the Keynes/Kalecki view:

In a modern capitalist economy with advanced instruments of credit, a pool of savings is not required to finance private investment.

Increased saving rates mean lower consumption spending mean lower business sales means lower business investment means lower output, income and employment.

Higher government deficits mean higher aggregate demand mean higher business sales mean higher output, income, and employment (and higher saving, btw, as a result of higher income not the cause).

I remember reading Paul Mattick (Senior right, not the junior that's been mentioned around these lists, lately?) a some years ago and liking it, but I can't remember his specific criticisms to these points.

The conventional view of deficits causing high interest rates, inflation, crowding out (deficits causing lower private investment), etc., are empirically not proven (actually disproven) and theoretically flawed. There is evidence for crowding in (deficits leading to more investment).

I will have to consult my mimeo of Shaikh's critique of the Keynesian theory of the State again. There may be something in there for you.

We can also work a higher wages leading to higher aggregate demand, etc. into the story on Keynes/Kalecki principles. We can also combine this with a marxian story about the same higher wages leading to technical change.

Some interesting theoretical and policy stuff along these lines can be found in Nell's PROSPERITY AND PUBLIC SPENDING.


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