Post-Keynesian economics is a heterodox tradition that takes John Maynard Keynes's General Theory (1936) seriously on its own terms, rejecting the neoclassical synthesis that absorbed Keynes into a general-equilibrium framework. The label was popularized in the 1970s, particularly through the Journal of Post Keynesian Economics (founded 1978 by Paul Davidson and Sidney Weintraub), though its intellectual roots run through the Cambridge (UK) economists Joan Robinson, Nicholas Kaldor, Richard Kahn, and Piero Sraffa, alongside the Polish economist Michał Kalecki.
Core commitments distinguish it from mainstream macroeconomics:
- Effective demand drives output and employment in both the short and long run; supply does not create its own demand (rejection of Say's Law).
- Fundamental (Knightian) uncertainty, not calculable risk, governs investment decisions, making expectations non-ergodic and rational-expectations modeling inappropriate.
- Endogenous money: the money supply is created by commercial bank lending in response to demand for credit, with central banks setting the interest rate rather than the quantity of reserves — a view increasingly echoed by the Bank of England's 2014 Quarterly Bulletin article "Money creation in the modern economy."
- Mark-up pricing in oligopolistic markets, drawn from Kalecki, rather than marginal-cost pricing.
- Income distribution between wages and profits is a central determinant of aggregate demand and growth.
Major strands include the Fundamentalist Keynesians (Davidson, Minsky), the Kaleckians, the Sraffians or neo-Ricardians, and the Kaldorian growth theorists. Hyman Minsky's financial instability hypothesis — that stability breeds speculative finance and eventual crisis — gained wide attention after the 2007–2008 financial crisis, prompting commentators to speak of a "Minsky moment."
Policy implications typically include active fiscal policy, incomes policies, capital controls, and skepticism toward inflation targeting as a sufficient macroeconomic framework. Modern Monetary Theory (MMT), associated with figures such as L. Randall Wray and Stephanie Kelton, draws heavily on Post-Keynesian foundations, particularly Minsky and the chartalist monetary theory of G.F. Knapp and Abba Lerner.
Example
After the 2008 financial crisis, commentators increasingly cited Hyman Minsky's Post-Keynesian "financial instability hypothesis" to explain how stable expansions had bred the speculative leverage that culminated in the Lehman Brothers collapse.
Frequently asked questions
New Keynesians retain neoclassical micro-foundations, rational expectations, and general equilibrium, explaining recessions through sticky prices and wages. Post-Keynesians reject these foundations, emphasizing fundamental uncertainty, endogenous money, and demand-led growth even in the long run.
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