Post-Keynesian Economics

Abstract

In contrast to Marx, Keynes interprets reality as an open system, in which humans are quite uncertain about future developments. They are not economic machines; changes in their mood—animal spirits—also affect their behaviour. So many neoclassical income, wealth, and substitution effects are difficult to calculate and sometimes negligible. The Great Depression showed that the capitalist system is an unstable system. Neoclassical economists interpreted Keynes’ theory as an explanation of a special case—not a general theory. Leijonhufvud developed the idea of the two corridors, which differ with respect to the mood of most spenders—being (over)optimistic or (over)-pessimistic with respect to the future. Akerlof and Shiller analysed the concept ‘animal spirits’ thoroughly and also applied it to the financial world. By 1982 Minsky had already formulated his financial instability hypothesis. The 2008 crisis illustrates the practical value of his theory.

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