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Keynes and the creation of a new economic narrative – Editor

The following recent (and lightly edited) commentary by Martin Threedman [1] appeared as a Facebook entry:
An interesting article by George Monbiot [2], discusses how the post WWII Restoration Story narratives of Keynesianism and Neoliberalism have dominated the political economic landscape – and how these stories trump both reason and facts. He is asking for a new narrative for a post-neoliberal world and has stated that returning to Keynesianism would not work.

One reason, in my view (among some others), is that this so-called Keynesian- ism can be more accurately described as bastard Keynesianism. But even if we could create a new narrative based on a more accurate representation of the work of John Maynard Keynes, that would be insufficient. A sufficient new narrative is provided by work in the field by Post-Keynesians, who take what Keynes understood as a starting point — such as his key insight that an economy can be in equilibrium without having full employment (meaning that there is involuntary unemployment, a concept rejected by Neoclassical economists and their political sibling Neoliberalism) — and taking it further. I emphasise in particular the necessity to perform a proper analysis of what a modern monetary production economy looks like, as exemplified by Godley’s Stock Flow Consistent (SFC) models.

I think a new narrative needs to be created by a combination of Modern Monetary Theory (MMT) and Monetary Circuit Theory (MCT). MMT combines many key post-Keynesian concepts (such as Lerner’s Functional Finance) into a consistent whole and provides a realistic description of the operational realities of government and private finance, rather than the fantasies and myths of Neoliberalism. While MCT, particularly in the hands of Steve Keen (and based on Minsky’s Instability Hypothesis), emphasises the non-linear far-from-equilibrium dynamics and instabilities of private credit creation (dynamics which are also understood by MMTers). Both of these use and are consistent with Godley’s SFC models.

Of course creating a new narrative would hide even the high-level labels noted in the previous paragraph. The question that must be asked is: who is, or could be, creating such a narrative? ”

It may be noted that the term “bastard Keynesianism” was first coined by the indefatigable Joan Robinson, and has appeared in the titles of books by Lynn Turgeon [3] and the late John Hotson [4] — one of ERA’s early mentors.

Wynne Godley

  1. A1505367641


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