Teaching postKeynesian economics
in a mainstream
department
Marc Lavoie
Preliminary
• This topic was imposed to me by Jesper Jespersen !
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A bit of autobiography
A bit of history of economic thought
Descriptions of courses
Some analysis ?
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Outline
• Background information
• Strategies for teaching heterodox stuff
• Actual experiments with various courses with PK content:
– Honours Macroeconomics
– Graduate course in the theory of growth
– Two courses in post-Keynesian economics
– Graduate course in monetary economics
– First-year principles of economics
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Background
information
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My first introduction to PKE
• Undergraduate at Carleton University, Ottawa
• Tutorial 1975 by G. Paquet: Sraffa’s E.J. 1926 article and G.L.S.
Shackle
• Honours Seminar in Modern Classics given in 1975-76 by T.K.
Rymes (editor of Keynes’s lectures 1932-33):
– Consumer theory, Theory of the firm: Coase, Demsetz,
Alchian, Jensen and Meckling (principal and agent)
– GET: Walras, Arrow, Hahn, Meade, Newman, H.G. Johnson,
Jones, B. Hansen, Solow
– Keynes (GT, ch. 17, QJE 1937), Friedman, Patinkin, Clower,
Leijonhufvud
– Harrod (Towards a Dynamic Economics), Robinson (1956,
1962), Kaldor (1956), Pasinetti (1962), capital
controversies
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Three years in Paris 1976-1979…
• A course on disequilibrium theory: Barro-Grossman, Clower,
Leijonhufvud, Ostroy-Starr, Bénassy, Hénin.
• A course on macroeconomic theory with some classes with
Alain Parguez, with critiques of disequilibrium theory and an
introduction to the theory of the monetary circuit.
• A course on international finance (the cambist view).
• A course on input-output and flow of funds.
• Lots of new important PK books at the time: Harcourt (1972),
Kregel (1973), Minsky (1975), Eichner (1976), Wood (1975),
Davidson (1972),Weintraub (1978).
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University of Ottawa (and Carleton)
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Initially there were 7 heterodox economists out of 16
A Marxist (Chossudovsky)
An econometrician , critical of neoclassical economics (Dagum)
A Keynesian (Bodkin, student of Sidney Weintraub)
A follower of Perroux
A Sraffian (Jacques Henry)
Two post-Keynesians (Mario Seccareccia, Marc Lavoie)
• However we also had a joint PhD program with Carleton
University, which denied tenure to both Stanley Wong and
Robert Dimand, and later refused to hire Ian Steedman (on the
claim that he had not enough international visibility!)
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The initial atmosphere at the
Department
• Initially there was no problem, except for one member.
• We were able to teach what we wanted, and create new PK
courses.
• But then senior members of the department, including some of
the heterodox members, decided to cleanse the department.
• Getting tenure, in 1984 for me and in 1985 for Seccareccia, was
a hard-fought battle.
• Gradually the atmosphere changed, as new members were
hired, who were much more ideological.
• They were getting annoyed of being teased in conferences, as
UofO was being called a PK department.
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The current atmosphere at the
Department
• We have lost any say on recruitment.
• Younger members are less ideological than members in midcarreer.
• Now we are only two heterodox out of 20 staff members,
through attrition (retirements, deaths).
• There are also a couple of heterodox-friendly economists in
neighbouring departments (international affairs, public affairs).
• We are free to do « our thing » within the existing courses.
• We have been unable to create a new program (MA in political
economy) or a new course that would cover « Currents in
modern economic thought ».
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Strategies in
teaching heterodox
economics
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Three strategies for teaching
heterodoxy (Mearman 2007)
• Introducing elements of heterodoxy in orthodox modules or
courses: First-year introduction courses.
• Creating an entire course devoted to an alternative
approach : Four courses in PKE.
• Teaching orthodox and heterodox economics in parallel:
Honours course in macroeconomics.
• In some way, I can say that we have tried all three strategies at
different stages.
• There are also courses in history of economic thought and
methodology (which were shrunk from 3 to 1 at the graduate
level)
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Teaching in parallel I
• “A series of topics of interest or theoretical concerns are taught
first from one perspective, then from the other, allowing
comparison” (Mearman 2007, 8).
• “Pedagogically, this option “is the most beneficial, because it is
based on comparative, critical treatments of both orthodox and
heterodox. Also, by committing to comparative treatment, the
parallel perspectives approach can prevent the confusion which
can occur when students are faced with different perspectives
only occasionally” (Mearman).
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Teaching in parallel II
• Mario and I did this in the Honours Macro course, for about
fifteen years, then the course was given to someone else.
• Personally, I did not find that this was most successful: fewer
topics are covered in a module, students don’t seem to learn
much about heterodox economics.
• There is a first-year textbook that precisely follows the teaching
in parallel method: Microeconomics in Context: Goodwin,
Nelson, Ackerman and Weisskopf (M.E. Sharpe)
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Creating an entire alternative course
• “This option means that justice can be done to heterodox ideas,
but is often restricted to specialist, optional ‘ghetto’ modules,
where the development of a critical understanding may be
limited” (Mearman 2007).
• It was our favourite option.
• This option was particularly successful in times of economic
recessions, in particular during the subprime financial crisis, as
students showed great interest in alternative views, with some
even questioning our colleagues as to why alternative theories
were not being discussed in other courses
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Creating an entire alternative course:
three strategies
• Strategy 1: Use an existing course, and transform it into a
heterodox course.
• One can do so with a course with a generic name, such as
Macroeconomic Theory or Theory of Growth, only presenting
heterodox content.
• This tactic is also useful if your chair asks you to teach a largeenrollment compulsory course that you don’t wish to take: you
then threaten to only teach heterodox stuff, invoking academic
freedom.
• Strategy 2: Create an explicit heterodox course
• Strategy 3: Create a new course, with some ambiguous title:
Explorations in Monetary Economics.
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Creating
alternative courses
Srategy 1
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Alternative course: Strategy 1
• When I arrived in Summer 1979, I was given the option of
teaching a grad course Theory of Growth. The contents included:
• Keynesian growth theories (Harrod-Domar)
• Neoclassical growth theories (Solow)
• Technical progress (Robinson, Kaldor 1957, Rymes 1971,
Näslund and Sellstedt 1978)
• Post-Keynesian growth theory (Shapiro 1977, Kaldor 1956,
Pasinetti 1962)
• The Capital Cambridge controversies (Harcourt, Robinson,
Samuelson and Modigliani, and then Solow, Pasinetti, Garegnani,
Petri, Eatwell, Hahn 1975, Spaventa 1970, Harris 1978).
• Growth and Finance: Kaldor 1966, Moore 1975, Eichner 1973,
Harcourt and Kenyon 1976, Wood 1975.
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Alternative course: Strategy 1
• The unofficial subtitle of the course became:
– Growth, income distribution and capital.
• The course gradually evolved into a manuscript called:
– Macroéconomie: Théorie et controverses postkeynésiennes
(1987, Dunod). The referee was Abraham-Frois.
• Ironically, as I was finishing the book, a colleague asked me,
around 1986, why I did bother writing about growth theory when
obviously growth theory was dead, with business cycle theory
being the in-thing, just when Lucas and Romer were publishing
their famous articles!
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Normal rates of capacity utilization?
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The 1987 book contained a chapter discussing what happens when
production or growth speeds up. What if profit margins or shares, as
described by the Cambridgians, did not rise?
It was argued that rates of utilization in the Kaldor-Robinson growth
model were assumed to remain at their normal levels.
It was also argued that in reality rates of utilization would first rise over
their normal levels in the short run, and that this would bring about a
higher share of profits, because of fixed labour costs associated with
supervisory work (Kaldor 1964, Asimakopulos 1970, Harris 1974).
It was claimed that, in the long run, prices would rise relative to wages,
to finance faster growth, and that rates of utilization would return to
normal, but without a mechanism.
At that time, I did not know of the neo-Kaleckian model (Rowthorn
1981, Dutt 1984, Taylor 1983). I discovered this literature when I read
Dutt ‘s CJE 1987 critique of Marglin (1984), and it was introduced in the
course outline of Fall 1987.
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Creating
alternative courses
Srategy 2
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Strategy 2: Create a new course
• In October 1978, a neoclassical-turned Sraffian tenured
colleague, Jacques Henry, proposed in a memo to create a new
course that would be called: Elements of neo-Ricardian
economics.
• In the Summer of 1978, Mario Seccareccia, a graduate of McGill
University where he had taken courses in particular from Tom
Asimakopulos, joined the department.
• I joined the department in the Summer of 1979.
• Sometime in 1981, as we organized a small conference on postKeynesian theory (V. Chick, Eichner, Asimakopulos, Dostaler),
we decided to move on and create two courses.
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The new courses
• Both courses were to be called Post-Keynesian Theory, but
initially the first one was to cover a flexprice system in the long
period, while the second one was to over a fixprice system in
the short period.
• Then, following a suggestion by Edward Nell, we decided to
create two courses:
• An undergrad course: PK Theory: Money and Effective Demand
• A graduate course: PK Theory: Value and Production
• These two courses still exist, but while the undergrad course is
being taught every year, the graduate course is more rarely
taught.
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PK theory: value and production
• This course was at first offered by Jacques Henry
• It was essentially the Sraffian course
• The course description was:
– Historical perspective on the theory of the surplus.
Characteristics of the post-Keynesian approach. Sraffa's
contribution. Price and value theory. Theory of production
and capital. Rent. Joint production. Analysis of the traverse.
Applications and policy implications: international trade and
public finance.
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PK theory: prices and production
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The last time I gave the course, I followed this outline:
General intro to PKE;
the neoclassical parables;
prices of production in a stationary state, in a growing economy;
direct, indirect and hyper-indirect labour;
consequences for trade theory, for the measure of technical
progress, and for empirical production functions;
the quantity traverse in the 2-sector Sraffian model;
the convergence or gravitation towards prices of production;
models with endogenous rates of capacity utilization;
the traverse in Kaleckian 2-sector models;
traverses towards normal rates of utilization.
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PK theory: Money and effective demand
Initial description
• This is the course that I gave most of the time
– The firm: mark-up theory; degree of monopoly and capacity
utilization; the megacorp: power and objectives; managerial
theories of the firm: the valuation ratio and financial
constraints; growth and investment of the firm as
determinants of the mark-up.
– The economy: normal prices and wages, endogenous
money supply, effective demand; investment, expectations,
uncertainty, speculation, financial instability, economic
cycles and growth; the aggregate mark-up and income
distribution; stagflation and income policies.
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PK theory: Money and effective demand
Current description
• Key presuppositions of heterodox and post-Keynesian
economics;
• the firm: managerial vs finance capitalism, objectives and
financial constraints of growing firms, empirical studies of cost
curves, pricing theories and normal prices.
• Theories of employment: effective demand, Keynes's view and
Kaleckian models.
• The financial system: the monetary circuit, endogenous money
supply, stock-flow coherence.
• Expectations, fundamental uncertainty, speculation, financial
fragility, economic cycles.
• Growth, investment, income distribution, capacity utilization, and
balance-of-payment constraints.
• Policies to deal with economic and financial instabilities.
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PK Theory: money and effective demand
• I have lost the course outlines before 1992, so I don’t know the
detailed contents in the 1980s.
• This course gave rise to a textbook, Foundations of PostKeynesian Economic Analysis, 1992.
• Then it gave rise to a second textbook, a simpler and shorter
one, Théorie postkeynésienne (2004), translated by L.P.
Rochon into Introduction to Post-Keynesian Economics
(2006)(and then translated into Japanese by Takashi Ohno).
• The course outines then followed relatively closely the contents
of these two books.
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Foundations and Introduction to PKE:
Contents
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Methodology
Micro: Consumer theory and agent behaviour
Micro: Theory of the firm
Macro: Money and credit
Macro: Employment, short-run
Macro: Growth, long-run (the Kaleckian model)
Macro: Inflation
• In the course, some years, some additional material would
include the Shaikh-McCombie-Godley critique of production
functions and labour demand functions, Minsky’s financial
fragility hypothesis, balance-of-payments constraint, fiscal
policies
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Difficulties with this 4th-year PK
course
• The main problem is that students have been exposed to three
years of intensive brainwashing, having been given no indication
whatsoever by my colleagues that there exist economic theories
or economic traditions alternative to the neoclassical view.
• Some students would get angry at me, because I would criticize,
either directly but mostly indirectly, all the models that they had
spent so much time to comprehend in earlier years.
• Most students act in a schizophrenic way, putting this course in
a small box, never to be opened again.
• The subprime financial crisis brought some positive feedback
from past graduates. For current students, it also brought a lot of
credibility to alternative views, which now seem more
reasonable and more realistic.
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Creating
alternative courses
Srategy 3
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Alternative course: Strategy 3
• In the early 1990s, our joint PhD program was revamped, a new
field, Monetary Economics, was created, and Mario Seccareccia
and myself were asked to design a new course.
• Initially we wanted to call this course Alternative Theories in
Monetary Economics, but finally, we adopted a more ambiguous
and diplomatic title, Explorations in Monetary Economics.
• In 2011, there was another revamping of the PhD program, and
some Carleton staff members questioned the existence of the
course, but in the end the course was kept as is.
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Less difficulties with Explorations in
Monetary Economics graduate course
• Graduate students were usually more receptive overall to this
heterodox graduate course than were undergraduates.
• The reason is that our graduate students mainly come from
abroad (a lot of them come from China), and hence are less
brainwashed and, ironically, many know less economics than
our undergraduates. For them, all theories are created equal !
• The problem, however, when these students write PhD theses,
is that their knowledge of the literature, orthodox or heterodox, is
rather slim.
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Explorations in Monetary Economics I
• The contents of this course changed considerably over the years, even
if it did not change that much year by year.
• The first course outline covered the following topics:
– Features of neoclassical monetary theory, the natural rate of interest
and the impact of the Sraffian critique (Colin Rogers 1989)
– The finance motive, the monetary circuit (Graziani)
– Money supply and its causality (Kaldor, Moore, Dean)
– The determination of interest rates (Pasinetti, Davidson, Pivetti)
– The instability of velocity (Rousseas)
– Monetary policy (Niggle)
– Financial instability (Minsky, Dow)
– International endogenous money
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Explorations in Monetary Economics II
• Various other topics were then introduced:
– The horizontalist versus structuralist debate
– Credit rationing and creditworthiness
– Kaleckian growth models incorporating interest payments
– The operating procedures of central bank and the clearing
and settlement system
– The « New Consensus »
– Neo-chartalism and the fiscal-monetary links
– The subprime financial crisis
• In 2000, for the first time, I introduced several sections devoted
to Godley’s stock-flow consistent approach, and this led
eventually to our book Monetary Economics (2007).
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Explorations and G&L Monetary
Economics
• Initially, the students were asked to reproduce on their own and
simulate a model of the manuscript.
• Then, as the models became available in Eviews on the website
of Gennaro Zezza, the students were asked to take any one
model, modify it somehow, and perform simulations.
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Introducing elements of heterodoxy in
orthodox textbooks!
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Introducing elements of heterodoxy in
orthodox courses: Principles course
• For a long time, Mario Seccareccia and I had played around
with the idea of writing a first-year principles of economics book.
• But this is a huge endeavour and it requires a substantial
amount of resources, so we never went ahead.
• In 2005 however, Nelson Thomson was looking for a new
principles of economics textbook on the Canadian market,
looking for a more ecclectic textbook than their succesful
Mankiw Canadian edition.
• We were asked to write that new Canadian edition, based on
the US Baumol and Blinder textbook (the creators of the AS/AD
model), which was then in its 10th edition.
• So our task was to modify the textbook, introducing some
heterodox elements, but without antagonizing lecturers.
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The textbook takes a pluralistic and
eclectic approach
• BBLS make use of analytical tools that are inspired
from different traditions in economics: mainstream
neoclassical, Keynesian, institutionalist schools.
• This is most evident already from the first chapter
where economics is defined beyond the study of
scarcity, and where the pluralism of ideas and
economic policy alternatives are promoted.
• BBLS displays more intellectual skepticism (less
arrogance) in affirming economic laws or overly
broad generalizations.
– “The purpose of studying economics is not to acquire a set
of ready made answers to economic questions, but to avoid
being deceived by economists.” Joan Robinson (1903-1983)
Micro textbook: A dose of realism
• Less focus on purely competitive markets and more
emphasis on oligopolistic market structures (Cf.
Grahame Thompson)
• Maximizing versus satisficing, profit objectives versus
ethical goals
• Linear production relations and constant marginal
costs, decreasing average costs
• Markup pricing, sticky prices, and the overwhelming
presence of unused capacity
• These features reappear in various chapters,
including the ones discussing natural monopolies,
taxation, business choices, etc.
Macro textbook: paradoxes
• Microeconomic behaviour may be fundamentally different from
macroeconomic consequences
• The paradox of thrift is emphasized
• Market mechanisms do not necessarily bring about equilibrium
• Keynesian fiscal policies are emphasized
• A banking system that relies on confidence
• Interest rate targeting, horizontal money supply
• No money multiplier mechanism, no crowding out effect
• The possible Dutch disease
• Falling prices may lead to a fall in aggregate demand, because
the debt burden of households and firms rises
The perverse effects of declining wages with
an upward-sloping AS curve
Micro eccleticism versus macro
ideological stance
• To our surprise, we discovered that it was much easier to
introduce ecclectic or heterodox elements in the micro part of
the textbook than it was in the macro part.
• Each chapter had to be read by about 5 lecturers.
• Our micro changes were accepted without much interference
• There was a lot of reluctance to accept our changes in the
macro book, both of form and content.
• We had to back track to the AS/AD model
• We had to wage a huge battle to keep the money multiplier out;
readers asked to have it at least in an appendix, not realizing
that it was contradicted by the described clearing and settlement
system.
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Teaching PKE in first year
• The story line in Micro is that there are two groups of
economists out there: the bad guys and the good guys. The
former believe in the laws of supply and demand, because they
assume that markets are free and competitive, and power plays
no role; the latter don’t believe so.
• The story line in Macro is similar: there are bad guys and good
guys. The former rely on the market-clearing view; the latter are
the Keynesians. They believe markets must be tamed.
• As one would suspect, this kind of presentation generates
contrasted reactions: most students come from the management
school and are rather reluctant to accept a critique of capitalism;
however other students are quite happy to be given the two
sides of the story.
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Conclusion
• As I prepared for this lecture, I realized how closely entertwined
has been my teaching and the writing of books.
• It is unfortunate that articles in scholarly journals are given so
much importance relative to books in the modern evaluation of
scholarly activity, as it undermines pedagogical efforts.
• I would agree with what was said yesterday by the rector of the
University, Ib Poulsen: research and teaching go hand in hand!
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