Post Keynesian Econometrics, Microeconomics and the Theory of the Firm

Citation

Lee, F.S. (2005), "Post Keynesian Econometrics, Microeconomics and the Theory of the Firm", International Journal of Social Economics, Vol. 32 No. 5, pp. 484-486. https://doi.org/10.1108/03068290510591317

This book emerges from a 1996 conference, at Leeds University, sponsored by the Post Keynesian Economics Study Group. The aim of the conference was the further development of Post Keynesian economics by moving beyond Keynes, but not too far. The conference itself was well attended and the delivered papers and ensuing discussion did move beyond Keynes. Drawing upon the papers presented at the conference, the editors have put together a collection that “focus on specifying the form that [Post Keynesian] microeconomics should take when account is taken of the knowledge requirements of firms in a competitive environment and the requirements for markets to function” (pp. 1‐2). However, the editors do not provide any definition, description, or discussion, of what constitutes Post Keynesian microeconomics in terms of aims, methods, or content – although such pronouncements and expositions do exist in the published literature and public domain. Therefore, the contributions of the various chapters to the editors' theme for the collection seem at times to be quite wide of the mark – that is to say, some aspects of some of the contributions seem to be dealing more with say neoclassical microeconomics than with Post Keynesian microeconomics. Hence to effectively evaluate the contributions of this collection in light of its stated aim, I will first provide a brief delineation of the aims and content of Post Keynesian microeconomics.

From a Post Keynesian perspective, the discipline of economics is concerned with explaining the process that provides the flow of goods and services required by society to meet the needs of those who participate in its activities, i.e. economics is the science of social provisioning. Thus, Post Keynesian economic theory is a theoretical explanation of the historical process of social provisioning within the context of a capitalist economy. Therefore, it is concerned with explaining those factors that are part of the process of social provisioning, including the structure and use of resources, the structure and change of social wants, structure of production and the reproduction of the business enterprise and other relevant institutions and distribution. The aim of Post Keynesian microeconomics is to identify, describe, and develop a narrative – that is a theoretical explanation – utilizing structures and causal mechanisms of the “micro‐events” that contribute to the overall social provisioning process in a capitalist economy. Because of the significance of the price mechanism to neoclassical economics, one theoretical concern of Post Keynesian microeconomic theory is the business enterprise, markets, demand, and pricing. Also, since Post Keynesian economists see investment as the primary director and driver of economic activity, a second theoretical concern is investment decisions, the financing of investment, and the profit mark up. Finally, in dissenting similarity relative to the neoclassical model of general equilibrium, a third theoretical concern of Post Keynesian microeconomic theory is the delineation of a non‐equilibrium disaggregated price‐output model of a monetary economy. The integration of the theories of the business enterprise, markets, demand, investment, and finance with a theoretical model of the economy forms a nexus of theory that can be identified as Post Keynesian microeconomics.

Post Keynesian microeconomic theory is, however, not an already made doctrine that is simply to be applied to economic or social reality; rather it is a theory that is currently being created and developed. Therefore, it is necessary to argue for the kind of methodology to be used to ground this process of theory creation. Dow, in her chapter on “Keynes, Post Keynesians and Methodology”, argues mostly about technical progress in economics but does state in a couple of pages that the appropriate methodology is critical realism. Similarly, Uskali Maki, in his chapter “On the Issue of Realism in the Economics of Institutions and Organizations” makes some brief but relevant comments on realism. However, the most substantial discussion of methodology are found in the three chapters on econometrics by Bill Gerrard, Paul Ormerod, and Paul Downward. Gerrard discusses the two different approaches in econometrics – the AER/textbook approach and the LSE approach – and argues that the latter is more consistent with critical realism. Ormerod, on the other hand, alerts Post Keynesians to the shortcomings of econometrics in examining macroeconomic time‐series data especially when there are insignificant shifts in the variables underlying the data. Finally, Downward argues that if carefully used, econometrics can avoid the potential problems identified by Tony Lawson and critical realism and make an important contribution to the development of Post Keynesian microeconomics. He illustrates his argument with a discussion of the use of econometrics in the examining the empirical literature on pricing. These three chapters are very interesting and should be on the reading list of any Post Keynesian economist who intends to utilize econometrics in their research.

If one had sat in on Paul Davidson's, Alfred Eichner's, and Nina Shapiro's lectures at Rutgers University circa 1980 or was told by Jan Kregel to read George Richardson or else, he/she could not but realize that radical uncertainty was fundamental to Post Keynesian economics and that the Post Keynesian approach to the business enterprise was inherently incompatible with the contractual approach advocated by Oliver Williamson – and Peter Buckley's and Malcolm Chapman's examination of transaction costs and uncertainty drive home this point. Thus, Sohei Mizuhara's chapter on “Keynes's Views on Information”, while interesting does not really add anything new, while Stephen Dunn's chapter on the “Post Keynesian Approach to the Theory of the Firm” only re‐emphasizes the importance of the role of strategy in delineating the nature of the business enterprise. Moreover, the chapters by Brian Loasby and George Richardson on “The Division and Coordination of Knowledge” and “Innovation, Equilibrium and Welfare” do not provide new insights about the business enterprise, but I did enjoy reading the chapters. However, Vicky Allsopp's chapter on “On Trust, Time, and Uncertainty” does contribute to a deeper understanding to the dense set of social/economic relationships in which the business enterprise is embedded. In particular, Allsopp makes it quite clear that trust is designed to overcome the inherent uncertainty in a non‐ergodic world.

Overall, this collection makes only a very modest contribution to Post Keynesian microeconomics. The chapters on econometrics, transaction costs, and trust should be read by anybody seriously interested in working in Post Keynesian microeconomics while the other chapters can be read during one's free time.