Recent claims, particularly in Paul Krugman’s column and blog, on the superiority of the Hicks-Modigliani version of Keynesian economics calls for a re-thinking of the issues raised in the early controversies over what Joan Robinson called “bastard Keynesianism”.
“Good, old-fashioned, Keynesian economics” (GOKE) substitutes the general and unmotivated assumption of downward money wage rigidity for the detailed examination of the varied social coordination problems that characterize modern capitalist economies. This underrates Keynes’ role as a precursor of modern information economics, and risks losing significant policy insights. The political economy background of the New Classical counter-revolution in economic theory, stemming from the unravelling of the “capital-labor accord” of the Second World War, provides some important lessons for the development of a macroeconomic analysis that is relevant to the real problems of modern capitalist economies.
