Studies on the Development and Modernisation of Post-Keynesian Theory

ABSTRACT

The Post-Keynesian economic approach offers a heterodox theoretical framework aimed at updating classical Keynesian views to provide solutions to modern economic problems. The theory argues that the free market mechanism, when left to its own devices, deepens inequalities, undermines social justice and leads to crises. Consequently, it proposes policies that prioritise active state intervention in the market, fair income distribution and full employment. Environmental issues, the importance it attaches to the public sector, the impact of financial markets on income distribution, its emphasis on tax justice, its ability to anticipate crises and the solutions it offers post-crisis, its common ground with feminist thought, its sensitivity to social issues, and even its critiques of neo-classical, capitalist and neo-liberal policies, along with the differences it highlights and the alternatives it offers, are also of great importance.

Another area of research and a new field of study concerns the need to update the theory in certain areas based on its historical evolution, its future, new areas of interest, and the importance of collaborations with other heterodox schools of economics in shared fields.

THE FUTURE OF POST-KEYNESIAN THEORY AND THE IMPORTANCE OF ITS UPDATATION

2008 -2009 Global Financial Crisis to the present day, Post-Keynesians have significantly advanced the theory, its scope and collaborations with other heterodox schools whilst remaining faithful to its original ontological foundations and mode of thought. For example, the extension of the stock-flow model by the British economist Wynne Godley and Lavoie (2007), financialisation (Stockhammer, 1999), inequality (Onaran, Stockhammer and Grafl, 2011), financial instability (Botta, 2013), ecology (Giuseppe Fontana and Sawyer, 2016), the nature of money and its role in the economy (P. Louis Rochon and Lang, 2012). Lavoie (2014), meanwhile, summarised the evolution of the main themes of Post-Keynesian theory, defined by the development of new theories and models incorporating Kaleckian growth models in the 1980s.

Essentially, Post -Keynesian theory aims to focus on alternative policies to promote economic stability, sustainable growth and improved income distribution. Within this framework, there are various policy proposals based on the fundamental principles of Post-Keynesian theory that aim to enhance economic performance. According to the theory, it is crucial for the state to increase public spending to stimulate economic activity. In particular, investments in sectors such as infrastructure, education and healthcare boost employment and support economic growth. To this end, higher taxes on high-income earners can be used to finance the state’s social expenditure and to reduce income inequality. Furthermore, the theory supports minimum wage policies to raise the income levels of low-paid workers, thereby ensuring that employment is maintained even during economic downturns through employment guarantee policies. Job creation in the public sector also affects income distribution. Post-Keynesian theory also aims to ensure that financial institutions take responsibility for risk management and transparency to prevent instability in financial markets. It supports the state increasing its social spending. Increases in social spending on education, health and housing also ensure better services are provided to low-income groups and promote social justice. It It also recommends that the state adopt policies to stimulate aggregate demand in order to support economic growth. However, as the economic structure and conditions of each country differ, the implementation and effects of these policies must be assessed on a country-specific basis.

CURRENT APPROACHES TO POST-KEYNESIAN THEORY

Post-Keynesian theory has evolved over time through various updates and developments. These contemporary approaches aim to expand, deepen and adapt the fundamental principles of Post-Keynesian theory to better suit current economic conditions. For example, Modern Monetary Theory (MMT) has emerged as a branch of Post-Keynesian theory. MMT offers a different economic perspective in situations where the state uses its own currency, stating that the state is not subject to a limited budget constraint, possesses the capacity to print money whenever it wishes. In this regard, it challenges the traditional understanding of economic policy and argues that a broader scope of application is possible.

Another approach, the structuralist Post-Keynesian approach, is an advanced version of the theory and aims to deepen economic analyses, particularly in developing countries. This approach examines how economic structure, institutional factors and foreign trade interact with the theory’s fundamental principles. Current approaches also include policy recommendations aimed at improving aggregate demand policies and income distribution. This is directed towards combating unemployment, providing support to low-income groups and promoting economic growth. The theory’s approaches to sustainable development and environmental economics are also growing. In this context, understanding the environmental impacts of economic activity and developing sustainable economic policies is becoming increasingly important. Recent analyses of price and income structures are also helping the theory to find better solutions to the interactions between inflation, wages, prices and incomes. These are important for better addressing the fundamental dynamics of the economy and updating policy recommendations. In summary, Post-Keynesian theory retains its significance as a model that is constantly evolving based on changing economic conditions and new knowledge.

Post-Keynesian Economics in the Context of Environmental Issues

There are also numerous studies within the theory that focus on environmental issues. In this context, Post-Keynesian economic thought is working on theoretical frameworks developed to address various environmental issues such as environmental sustainability, resource use, the green economy and climate change. For example, Post-Keynesian economics highlights the job-creating effects of investments in the green economy. Investments in the green sector, by opening up new areas of employment in the economy and creating jobs in environmentally friendly sectors such as green energy projects, feature among Post -Keynesian policy proposals. The American ecological economist Jonathan M. Harris, however, has argued that the solution to global environmental problems must be based on a form of ‘Global Ecological Keynesianism’ (J. Harris, 1991, pp. 111–120). He highlights that environmental externalities (for example, pollution, depletion of natural resources) are not effectively addressed in markets. Consequently, he advocates for public intervention to resolve environmental issues. He argues that environmental impacts must be brought under control through taxation, incentives and regulations.

Post -Keynesians and heterodox economists view the economy as a subsystem of nature; they focus on limits arising from either direct over-use of resources or indirect supply constraints, and place importance on sustainable development and ecological macroeconomics. They do not subscribe to the view that it is impossible to achieve socially sustainable full employment without increasing demand for intermediate goods, raw materials and energy inputs (Mearman, 2009, pp.97–125). Meanwhile, historically, greater output has historically meant an increasing impact on the environment, yet reducing investment or consumption leads to unemployment. For this reason, Post-Keynesians have developed a stock-flow consistent (SFC) model to examine the shift towards higher consumption of services and low-energy-intensity goods, rather than higher investment in green technology. They thus emphasise the need to plan national priorities away from energy-intensive production and goods consumption, towards services with low impact and high efficiency that provide significant social and environmental benefits . In their view, the well-being of current and future generations is expressed through the importance placed on the environment and should take precedence over economic growth. To this end, they place importance on ensuring that both private and public investments are directed towards sustainable production. Consequently, the literature almost exclusively favours reducing greenhouse gas emissions, adopting new efficient technologies to curb unsustainable economic growth, and favouring demand management policies. Indeed, they propose increasing consumption to direct private and public investment directly towards sustainable ‘green’ sectors, reducing working hours to benefit from additional efficiency, and countering the decline in investment to maintain employment and steer low investment levels ".

Alongside this, PK economics focuses on economic and social inequalities in the context of global climate change. It notes that climate change and environmental degradation tend to affect low-income and vulnerable communities more severely. In this context, it emphasises that environmental policies must be designed to reduce inequality and promote social justice. It considers that traditional measures such as Gross Domestic Product (GNP) do not adequately reflect environmental and social factors. By examining the role and limits of natural resources in the economy, it emphasises the need for sustainable management of resource use. It regards the effective use and conservation of natural resources as an integral part of economic development. It also takes into account the environmental impacts of the financial sector. In particular, in line with the ‘Jevons Paradox’, it examines how investments in fossil fuels and environmentally friendly technologies affect the financial system and contribute to financial instability. In short, PK economic thought has diversified and expanded through such studies on the economic analysis of environmental issues. However, we must also note that this is an ongoing field of study, with new theoretical developments and policy proposals continually emerging.

Furthermore, the connection between capitalism and the environment (nature) pollution and destruction—which the Austrian E. Stockhammer and the Australian Paul Ramskogler (2009) have argued the Post-Keynesian theory must certainly address—must also be concretised. Because the theory century (A. Mearman, 2009, p. 27). Consequently, ecological issues have become one of the most significant areas of study within the recent Post-Keynesian economic framework (American Richard Holt and British ecological economist Clive Spash, 2009; Fontana and Sawyer, 2016).

On the other hand, there is no theoretical framework within neo-classical or neo-liberal approaches concerning the relationship between capitalism and the environment. Furthermore, the the concept of the hyper-rational individual and the self-regulating market does not regard state intervention as necessary, and the same applies to the resolution of environmental problems (Spash and Schandl, 2009, p.47). Economists trained in the neo-classical tradition have also developed mathematical models that adopt ‘optimisation behaviour’, assuming microeconomic axioms, viewing people as agents who maximise utility in their own interests, and and engaged in exchanges” (C. Spash & H. Ryan 2010, p. 2).

For Post-Keynesians, the institutional and historical perspective is also crucial within the framework of ecological economics, and ecological issues are addressed within the scope of political economy. “Green Keynesianism”, one of the Keynesian analyses that regained popularity following the 2008 crisis, is an extremely important perspective in this regard (J. Harris, 2013, pp. 1–19).

In this context, within the 21st-century neoliberal order, a vision that does not exclude ecological sustainability must be put into practice. This situation can also be described as combining Keynesian fiscal policies with environmental objectives. Indeed, thanks to Post-Keynesianism’s coherent and social vision, a constructive alternative for modern capitalism can be created by synthesising PK macroeconomics with environmental economics through intelligent management (J. Harris, 2013, pp. 1–19). The question being addressed is: what must be done to revitalise the economy for growth without causing further harm to the environment? In this context, the idea that economic instability and environmental catastrophe can be resolved through a combined analysis has gained prominence in the literature. In other words, what needs to be done is to “channel public spending towards low-carbon industries and environmentally friendly activities” (Blackwater, 2012, p. 51). Furthermore, given that the world has entered a new era known as ‘secular stagnation’, the ideal of infinite growth has come to an end, and governments are implementing strict austerity measures, the theory offers new insights by shifting the dynamism of capitalism from polluting industrialisation towards green investments (Bina, 2013, pp. 1023 –1047). As an idea that challenges mainstream views, the primary objective of Green Keynesianism is to revitalise the economy on a more sustainable basis by implementing fiscal stimulus programmes within a green-focused framework (Barbier, 2010).

The Importance It Places on the Public Sector and Its View of States’ Economic Independence

Post-Keynesian economics adopts an economic perspective that pays close attention to public intervention and the state’s contributions to the regulation of economic activities. Post-Keynesians argue that a free-market economy cannot automatically ensure full employment and stability, thereby highlighting the importance of the state’s role in the economy. Furthermore, they state that the state can stimulate economic activity by increasing public spending and implementing employment policies.

Meanwhile, Post-Keynesian economists also argue that the market system fails for the following reasons:

• The market economy cannot solve the problem of the efficient allocation of resources on its own.
• The market economy fails in developing countries due to factors such as insufficient capital accumulation, and factors such as risk and uncertainty, and therefore economic growth must be provided by the public sector.
• Ensuring fairness in the distribution of income and wealth within the market system can only be achieved through public intervention.
• Problems such as the disruption of price stability, imbalances in the balance of payments, underemployment and low wages cannot be automatically resolved in a market economy . The state must combat such economic instability.

In short, PK has always been perceived by economists as the public sector has always been perceived as a structure that improves, corrects and resolves problems in the economy, and for this reason, state interventions have been advocated. In this context, they argue in particular that state expenditure will trigger economic growth by increasing private sector demand and supporting employment. They believe that monetary policy is an effective tool, but note that interest rates alone are not sufficient, and that low interest rates merely . Consequently, they argue that the state must pursue an active fiscal policy alongside monetary policy. Post-Keynesians also state that state intervention in economic indicators is critical for achieving macroeconomic objectives, particularly full employment and price stability. Within this framework, they emphasise the state’s role in regulating and correcting the economy, as well as the importance of social justice and income distribution. They argue that public policies must aim to reduce income inequality and uphold social justice. They support the regulation of income distribution through tools such as tax policies, social benefits and minimum wage policies. They oppose global economic imbalances and dependencies . They defend the freedom of states to determine and implement their own economic policies. They argue that foreign trade policies must be managed with care to protect domestic markets and employment.

On the other hand, the ‘Small State’ principle, where the public sector’s influence is limited, prevails in the neo-liberal system, and more flexible tax arrangements are applied to the wealthy. Particularly in developing countries, state revenues decline due to low income taxes. In most developing countries, the ratio of tax revenues to GDP (18 per cent) is half that of developed countries (38 per cent) . The ratio of income taxes to consumption taxes is also more than twice as high in developed countries compared to developing countries (Tanzi and Zee, 2001). This prevents countries from redistributing their revenues to the poor through expenditure and fair taxation. In these countries, due to the inadequate enforcement of laws and various privileges, the incomes and assets of the ruling classes are also under-taxed. Therefore, in Southern countries, it is essential to broaden the tax base by reducing the rates of regressive taxes such as VAT, shift towards progressive income and wealth taxes, increase property taxes, and make the tax burden more equitable (Pasha, 2003). Developing countries also implement expansionary fiscal policies to accelerate economic growth. Such policies play a counter-cyclical role in maintaining a stable economy. In stimulated growth, they help to close budget deficits as tax revenues increase in line with GDP. In such countries, which generally experience demand-driven growth, the level of output is constrained by the components of aggregate demand. Relative prices vary depending on whether aggregate demand decreases or increases. Expansionary fiscal policies also come into play when aggregate demand is insufficient.

In this context, public investment plays a vital role in boosting the rate of economic growth, both by providing a demand stimulus to the economy and by expanding production capacity. Such investments are also crucial for the allocation of resources to the poor. Consequently, public investment is significant in three respects for low-income and growth-oriented economic strategies: demand management, capacity building and redistribution (Weeks and Roy, 2004).

Furthermore, public investment is not the enemy of private investment, as the neo-liberal economy claims. In fact, it is a prerequisite. It does not create a crowding-out effect. On the contrary, it acts as a stimulus for greater private investment. For instance, according to research findings, every 1-point increase in public investment multiplies private investment by 0. 66 per cent. For this reason, its ratio to GDP should be at least 5 per cent. Furthermore, data from developing countries suggest that a crowding-out effect is unlikely unless the economy is very close to full employment and the capital-output ratio for public investment is higher than that for private investment. Moreover, there is very little empirical evidence to suggest that public investment exerts a crowding-out effect on private investment (Hemming, Kell and Mahfouz 2002). Moreover, if an economy has spare capacity and households are subject to liquidity constraints, the multiplier effect of public investment is stronger. On the contrary, slow growth and low employment rates harm low-income groups more than anything else. Moreover, moderate inflation is compatible with growth. What is problematic are very high (over 40 per cent) and very low (under 5 per cent) inflation rates. For developing countries, annual growth of 7–8 per cent with inflation around 10 per cent is ideal.

On the other hand, one of the issues the PK theory has primarily focused on over the last 20 years is “the issue of governance and power”. In this regard, Kalecki’s (1943, p.326) insistence that “the obstacles to achieving full employment do not stem from economic causes, but are rather exacerbated by political causes” serves as a good starting point. However, within the framework of the “idea of the public sphere” and the “importance of the factors determining the behaviour of political actors” (Gürkan, 2016, p. 33), the state must be more active in matters prioritising distribution and employment. In a social order dominated by a public sector that creates ever fewer jobs and fails to provide workers with adequate wages (Chomsky, 2012, p.338), this problem becomes even more structural. Furthermore, the theory’s ideal of concretising policy alternatives is only possible through the acceptance of the concept of the “benevolent state”. The inadequacy of a mindset that treats the individual solely as a “self-entrepreneur” within a “hyper-rationalist” framework, represents another distinct area standing in the way of Post-Keynesian thought. In this context, we can expand the theory’s potential new concepts to include issues such as the “problem of democracy” and the “search for cultural sovereignty following the loss of economic sovereignty”.

When considering the public budget, as we have previously noted, the first recourse for a government seeking to stimulate investment and aggregate demand, thereby increasing economic growth and consequently reducing unemployment, is budget deficits. Budget deficits that can be easily financed will ensure a balance between investment and savings. Increased interest payments resulting from the budget deficit can also be met through long-term borrowing at low interest rates. Indeed, public borrowing through instruments such as bonds and bills is perceived as a transfer to the incomes of those purchasing these securities (Kalecki, 1944, p.45). Furthermore, if public debt and the budget deficit increase at the same rate as the economic growth rate, the ratio of GDP to public debt will remain constant (Arestis & Sawyer, 2003, pp.16–17). Kalecki also noted that a rising budget deficit could finance itself through the increase in savings resulting from changes in income distribution and rising incomes (Kalecki, 1944, p.40). This is because the interest paid on bonds and bills increase households’ non-autonomous income and the amount of tax levied, resulting in a decrease in the ratio of public debt to GDP (Lavoie, 2022, p. 366). In summary, Post-Keynesians argue that without civilised values in an economy, prosperity, a strong national defence, domestic peace and justice cannot be achieved. At this point, they emphasise the necessity of state intervention (Marangos, J., 2000, p. 304).

Approaches to Economic Inequality and Income Distribution

Since the 1980s, the share of labour in total output has been declining worldwide, accompanied by relatively lower growth rates and higher unemployment rates. The internationalisation of production, driven by the profit-seeking nature of capital, is linked to the policies adopted by conservative, liberal or social democratic governments in both developed and developing countries. Capitalist globalisation does not lead to an internationally balanced economy in terms of full employment. Post-Keynesian, and particularly Post-Kaleckian, models of income distribution and growth, however, take into account both domestic and international markets regarding the cost-related effects of wages. Within this framework, they link the increase in labour’s share of total income to growth in output. They refer to this as ‘wage-led’ growth. They analyse the impact of changes in income distribution—largely driven by external factors—on demand (growth). The graph below illustrates the historical decline in both the labour share of total expenditure and the labour market, alongside GDP growth rates in Europe.

Figure 1: Labour Income Share (as a percentage of GDP at market prices) (left-hand column) and the annual average GDP growth rate in the EU-15 (right-hand column) (1960–2011). The thin line represents the labour share, whilst the thick line represents the GDP growth rate.

Source: AMECO. Includes West Germany up to 1990.

On the other hand, the theory’s analyses within the problem- and situation-oriented discipline of political economy regarding contemporary economic issues are particularly important for low-income groups. ‘Inequality’ is the most significant theme the theory addresses in this regard. In this context, discussions on income distribution are examined in terms of the economic outcomes generated by factors such as growth, inflation, technological development and employment. (Hein, 2016, p.5). Technological change, globalisation, financialisation and the downsizing of the welfare state are also the most significant causes of the decline in the wage share. Meanwhile, income distribution is a complex relationship between, on the one hand, costs and the unit profit rate, and on the other, wage levels and the demand for consumer goods. For example, a decline in real wage levels leads to a reduction in employment rather than an increase in corporate profits. In other words, the situation where demand rises sufficiently as a result of an increase in wage levels only arises when high wages are involved. This situation is known in the literature as the ‘Cost Paradox’ (Jespersen, 2009, p. 42). Meanwhile, the cost paradox holds true when the capacity utilisation rate remains below one.

In this context, the PK economic approach works within various theoretical and analytical frameworks to understand the effects of income distribution and inequality on economic performance, to develop policy recommendations, and to enhance social justice. It therefore argues that economic inequality and distortions in income distribution have negative effects on aggregate demand. Furthermore, the limited spending power of low-income groups leads to low aggregate demand, which in turn causes a decline in employment. In this context, rising income inequality negatively affects economic growth. Post-Keynesians challenge the traditional neoclassical economic view regarding the determinants of wages. In their view, wages are determined not only by market conditions but also by power relations, the influence of trade unions and negotiation processes. Consequently, they focus on the role of wages in determining income distribution. Post -Keynesians believe that macroeconomic policies also influence income distribution. In particular, they emphasise the potential of fiscal policy tools (public expenditure, tax policies) to regulate income inequality. They argue that fiscal policies aimed at reducing income inequality and enhancing social justice must be implemented.

Furthermore, Post-Keynesian economics highlights that financial markets exacerbate inequality in income distribution. Those with access to financial assets are more likely to earn higher returns than those without. This situation further exacerbates income inequality. At the same time, they state that speculation and crises in financial markets also have negative effects on inequality. Post-Keynesian economics argues that the state must play a regulatory role in income distribution. They emphasise the need for the effective use of public policies such as tax policies, social spending and minimum wage regulations. Through these policies, it is possible to provide support to low-income groups and enhance social justice. On the other hand, the replacement of the Cambridge Theorem by Kalecki’s theory of income distribution in the 1980s lent further strength to Post-Keynesian thought. This is because, whilst the Cambridge Theorem is based on the assumption of perfect competition, Kalecki’s theory is founded on a framework of imperfect competition. Furthermore, Kalecki assumed the capacity utilisation rate to be endogenous in the long run and did not employ the full employment hypothesis. Indeed, he did not address the point found in the Cambridge theory that workers can only generate profit when they save. In Kalecki’s approach, the wage level depends on the relative power imbalance between workers and employers. Post -Kaleckian models are quite diverse in terms of econometric methodology and equations, particularly with regard to open economy models. Two distinct econometric methodologies are employed in the literature. The majority of empirical studies rely on single-equation estimation of consumption (or saving), investment, export and import (or net export) functions. However, the theoretical framework and the empirical equations are not identical. Consumption functions are estimated in much the same way, whilst investment equations show some variation. Nevertheless, the fundamental difference lies in the inclusion of unit labour costs, along with export and import prices, in the models—specifically in the international trade and auxiliary price equations required for integration.

On the other hand, American economists Samuel Bowles and Robert Boyer, who worked on early Kalekian models and examined the dynamics of income distribution and class conflicts within heterodox and Marxist economic traditions, conceptualised employment and productivity regimes and investigated the feasibility of a wage-based employment regime. To this end, they tested the effect of the profit share on savings and investment . According to them, if labour productivity is exogenous, a wage-led aggregate demand regime implies a wage-led employment regime. However, if labour productivity is endogenous, a wage-led aggregate demand regime becomes a necessary but not sufficient condition for a wage-based employment regime. In both cases, a wage-based aggregate demand regime is a precondition for a wage-based employment regime (S. Bowles and R. Boyer, 1995). D. Gordon, in his analysis of the US economy, uses separate equations and has normalised savings, investment and net exports with an exogenous variable. The profit rate is also endogenised and depends on capacity utilisation and certain exogenous variables. Consequently, he concludes that the US economy is profit-driven (D. Gordon, 1995). Whilst these two early studies are valuable from an econometric perspective, they fail to examine the time-series properties of the variables used in the models. Furthermore, the determinants of international trade, exports and imports are not addressed in the models.

Wage-led growth, as found in Kalecki’s thought, also contributes to economic growth due to the high share of wages and an increase in effective demand, thereby contributing to economic growth. It is clear that a reduction in wages would lead to significant losses in AD (aggregate demand) as this sector has a higher marginal propensity to consume. Such austerity policies, implemented even in post-crisis periods, are contracting production. These save money, lead to capital leaking out of the real economy, a slowdown in economic growth, and the problem of having to collect more taxes to compensate.

For this reason, more recent empirical studies on demand regimes propose a general Keynesian model based on the aggregate demand equilibrium. In these empirical models, two types of equations are used to determine the nature of a given economy’s demand regime. The first set of equations relates to macroeconomic aggregates: consumption, investment, and exports and imports (or net exports). In the second, auxiliary price equations are used for the determinants of exports and imports. For example, looking at the model by Stockhammer, Onaran and Ederer, we see that total output is a function of the labour income share. The aim of the model is to determine the effect of a change in the labour income share on market prices and GDP. However, in empirical studies, only the private sector is taken into account. Total demand can be expressed as follows:

AD = C(Y, LS) + I(Y, LS, zI) + NX(Y, P, Px, Pm, zNX) + G(Y, zG)

Here, P represents the domestic price level, Px represents export prices and Pm represents import prices. P is a function of unit labour costs, and is therefore an indirect function of the labour income share. The exogenous variables in investment and (net) exports are, respectively, the real interest rate and global demand. Furthermore, Pm is exogenous in the model. Changes in aggregate demand begin with changes in the income distribution. The multiplier mechanism will also have an effect on consumption, imports and investment. Moreover, for the econometric estimation of this model, Stockhammer, Onaran and Ederer propose a consumption function of the form C = f(W, R). Here, W (adjusted) is labour income and R (adjusted) is capital income. This equation enables the estimation of consumption trends via wages and profits. Furthermore, it is expected that wage earners will have a higher propensity to consume (Stockhammer, E., Onaran, Ö and Ederer, S, 2009. pp. 139–159). Furthermore, investment is generally estimated as a function of aggregate demand, the interest rate, and total profit or the profit share. Meanwhile, Hein and Vogel do not confirm the positive effect of the profit share on investment for Austria, Germany, the UK and the US (Hein E and L. Vogel, 2008, pp. 479–511). In their study on G20 countries, Onaran and Galanis also found that the US is the only country where the profit share has no significant effect on private investment, whilst in most of the developing countries they analysed, the profit share is not a valid factor (Onaran, Ö and G. Galanis, 2012).

Table 1. Objectives of Wage-Based Development Thinking

Objectives What They Aim to Achieve

Growth Style Based on full employment.

Continuous Increase in AD Increased consumption through wage rises, followed by accelerated investment, increased productivity through new technologies and a rise in AD

Working Life Increased unionisation and the strengthening of the collective bargaining process in favour of the working class.

Regulations in Financial Markets Reducing financial speculation and ensuring that minority shareholders have a say in management over the long term, credit supervision and advertising bans, a reduction in bank promotions, the introduction of a financial transaction tax, a counter-cyclical credit management policy, the elimination of secrecy in tax havens, and the regulation of the shadow banking industry

Working Hours A reduction in total working hours

Tax System Reducing the rates of value-added tax and indirect taxes whilst increasing tax collection rates

Fiscal Policies Achieving full employment, preventing distortions in income distribution caused by wage-led growth, and fostering long-term sustainable economic growth

Source: Stockhammer and Onaran (2012, pp.16-17)

When we examine our country in light of the table, we observe that, contrary to expectations, the rate of indirect taxes in Turkey has increased to around 70 per cent, whilst the tax revenue collection rate has fallen from the 90s to the 80s)

Figure 2: The Ratio of Indirect Taxes and the Tax Revenue Collection Rate in Turkey between 2000 and 2021

Source: Republic of Turkey Presidency of Strategy and Budget, 2022, data.

According to Lavoie (2014), however, the key mechanism to restore the economic order to normal capacity utilisation is the ‘Cambridge Price Mechanism’. This mechanism is an adaptive process whereby, when the actual level of profitability exceeds the norm, an adaptive process in which firms also increase their profit margins. This process both alters the distribution of income and restores the economy to the normal capacity utilisation rate. (Lavoie, 2014, p.391). Pakistani economist Anwar Shaikh (2007), who developed Kalecki’s model by allowing for an endogenous change in the propensity to save, has also devised a similar alternative. In his theory, Shaikh has worked on a mechanism that would restore the economy to the normal capacity utilisation rate whilst retaining Keynesian and Kaleckian characteristics. In Shaikh’s synthesis, in line with Keynesian practice, savings are dependent on investment, and there is no situation where the real capacity utilisation rate would deviate continuously from its normal level (A. Shaikh, 2007, p.6). One of the contentious issues in the literature on demand-based functional income distribution and growth analysis, which forms the basis of post-Keynesian thought, is the impact of the main functions of aggregate demand. In this context, the debates regarding the conditions under which the wage share within consumption and the profit share within investment determine whether total demand and growth are wage- or profit-based are also of great importance (Hein, 2016, p.12). These debates, at both the empirical and theoretical levels, focus on the consequences of wage- or profit-based system applications in terms of functional income distribution.

On the other hand, in his endogenous development theory, which he presented alongside unemployment, Palley (2014) Marxist labour market approach—which determines income distribution and the allocation of wage costs between workers and managers—with the monopoly power approach emphasised as the determinant of the Neo-Kaleckian functional income distribution, thereby highlighting that the economic order can exhibit both profit- and wage-based characteristics simultaneously. By referring to the distributional effect of wage costs, Palley thus demonstrates that that the economic order can be profit-driven in terms of functional income distribution, whilst being wage-driven in terms of the distribution of wage costs between workers and managers (Palley, 2014, p.1371). The innovation introduced by this synthesis, which Palley defines as a ‘synthetic capitalist economic growth model’, is the concept of ‘managerial remuneration’ . Jespersen (2009), however, has stated that the assessment of the structural consequences that the welfare situation would create in terms of income distribution is not taken into account in Post-Keynesian theory. According to Jespersen, this situation creates gaps in terms of ideas that could offer an alternative to the orthodox approach’s neo-classical welfare theory. From this perspective, Post -Keynesian theory is expected to move beyond hypotheses such as market behaviour and individual optimisation, forming a synthesis in which income distribution, welfare theory, the state’s role as the ultimate employer, the public sector and macroeconomic performance are fully integrated (Jespersen, 2009, p.43) .

In order for programmes defined by the state’s role as the ultimate employer (DNİR) to be utilised as a mechanism to correct income distribution in both developed and developing countries, it is necessary to implement them by using arguments such as: developing countries’ institutional capacities, ensuring universal acceptance that this serves the public good, emphasising that crime rates will fall, and stating that the costs will be covered by unemployment funds without placing a burden on the budget .

In summary, income distribution and effective demand—among the best-known features of Post-Keynesian thought— also provide us with insights into the general state of the economy. Regarding income distribution, the Cambridge Theorem—based on the work of Pasinetti and Kaldor—analyses income distribution in the long run and under full employment, stating that the share of profit in national income is equal to the product of the investment rate and the inverse of the savings rate. In Kalecki ’s model, on the other hand, features the concept of a ‘monopoly situation’ and emphasises that the share of labour in national income, within the macro and micro contexts, falls within the scope of the profit margin that firms add to their production costs. In this model, the structure of income and employment is determined by aggregate demand, and long-run cyclical unemployment is possible. New explorations regarding functional income distribution are at the forefront of contemporary economic research. Indeed, in current literature, alternatives that synthesise the Kalecki and Cambridge models with other approaches are gaining prominence.

Feminist Economics and the Post-Keynesian Approach

First and foremost, the feminist economic perspective addresses what economic measures are necessary to improve women’s economic conditions (İşler and Eroğlu, 2004, p.61). Feminist economists attribute the reason women are viewed as second-class citizens to mainstream economists modelling the ‘homo economicus’ as male (İşler, 2010, p.1). Furthermore, they focus on human-centred issues such as ensuring that human life is sustained under good conditions, meeting all essential needs, and addressing inequality of opportunity. They argue that women’s labour, which is often overlooked within the household or in rural areas, is utilised without compensation. They emphasise that nature and the environment must be included within the scope of economic analysis, given that natural resources are exchanged and raw materials constitute one of the primary inputs of production. They view the concept of gender as a fundamental element explaining economic phenomena within the framework of power relations, and regard institutions such as the market, the family and the state as institutions that harbour gender discrimination. Furthermore, the feminist economic perspective has introduced a feminist viewpoint across a broad spectrum ranging from neo-classical and institutional economics to Marxist or socialist thought. It is not a separate school of thought .

As a lens through which economic analysis is conducted, it is one of various orthodox and heterodox methodological approaches. It represents a relatively new tradition characterised by a deep concern regarding gender inequality and is undoubtedly linked to other forms of social inequality. Meanwhile, the failure to take gender into account in economic practice leads to an inability to correctly perceive the underlying causes of economic events and to diagnose problems realistically. As a solution to this problem, gender inequality must be used as an analytical category in pre- and post-crisis assessments (Akgöz and Balta, 2015, p.13). In this way, the discipline of economics will become productive discipline (Nelson, 1995, p.146).

Building on the feminist perspective’s premise that social roles determine economic behaviour, Post-Keynesians argue that conflict between different groups stems from inequality in access to resources, emphasising the persistence of this situation. On the other hand, key concepts in feminist economics include gender, household and unpaid labour, and unequal pay for equal work; whereas in Post-Keynesian economics, these are uncertainty, the power of markets and endogenous dynamics. It is possible to strengthen both traditions through mutual interaction. Meanwhile, compared to feminist economics, the Post-Keynesian theory is a more consistent tradition in terms of its rejection of fundamental neo-classical ideas such as markets reaching equilibrium, perfect information (or rational expectations) and exchange based entirely on external factors. Marc Lavoie has proposed four common points that could form the basis for greater interaction between the two traditions: processual rationality, holism, realism and a focus on production rather than exchange.

In addition to these, feminist economists have developed various alternatives to the standard concept of the ‘rational economic man’. Holism is generally not accepted by feminists; some, particularly those working within the mainstream, prefer to adhere to methodological individualism. Regarding realism, the third common ground proposed by Lavoie, Post-Keynesians remain unconvinced. Feminist economists, on the other hand, generally adopt a more critical stance. As for the fourth common point defined by Lavoie between the two theories—focusing on production rather than exchange—we can say that feminist economists do indeed think along the same lines as Post-Keynesians (Lavoie, 2003, pp. 189–192). Whilst both schools place greater emphasis on the effects of financial instability and the widening gap between rich and poor countries, feminists are more concerned with gender discrimination and poverty. Both traditions are aware of the interaction between social class and gender with other forms of social differentiation, such as race and ethnic origin (R. Williams, 1993, pp. 144–153). Both acknowledge the importance of institutions. Feminist concerns, in particular, wage differentials and gender discrimination find their place most prominently in Post-Keynesian labour market analysis.

At the same time, there is a broad scope for feminist analysis within Marxist and institutional economics through Post-Keynesian connections. We also observe social conflicts in workplace inequalities. Indeed, when determining who works in which sectors, it is not market rules but gendered approaches that prevail. This, in turn, leads to various issues such as intra-class distribution. This rigid gendered perspective in labour markets stems from patriarchal structures and is generally accepted. Such restrictive attitudes towards women represent a different manifestation of the capitalist hierarchy in terms of distribution and income distribution. When wages are determined, the inequalities created by such social practices—beyond productivity, experience, education or position—accelerate the exploitation of women’s accelerates the exploitation of women’s labour.

On the one hand, it also condemns capital to cheap labour. During periods of declining growth, women effectively become a reserve labour force. Yet, according to Post-Keynesians, an increase in female employment is directly linked to the reduction of poverty and income inequality. However, they strongly criticise the use of this as a means of exploitation, such as increasing women’s workload or paying different wages for equal work. Undoubtedly, the employment of women in the labour force is more important for economic growth. Post-Keynesian analyses underpin empirical studies that link low wages are linked to development rates and labour market outcomes, underpinned by Post-Keynesian analyses. Some developing countries, however, view the female workforce in labour-intensive sectors unfortunately view the female workforce in labour-intensive sectors as an advantage in sectors where international trade is highly competitive. Although production is carried out with high profits and low unit costs, and this helps to close the balance of payments deficits in these countries, the economic consequences of insufficient demand resulting from low incomes in semi-industrialised countries are more severe.

Looking ahead, there are many areas where the two schools of thought could collaborate. For example, working on the integration of feminist concerns into Post-Keynesian labour economics beyond the superficial manner in which they have been addressed so far, demonstrating that Post-Keynesian thought provides a broad forum for Marxist, institutional economic analysis and feminist analysis, bringing together the process-oriented emphasis in PK’s theory of income distribution with feminist economic analyses of discrimination in the labour market, conducting further research on shared concerns regarding issues of distribution and sharing, and focusing on the interactions between class and gender with other social differentiations, such as race and ethnic origin , and working to resolve the contradictions between the two schools linked to historical development; we can also mention making greater use of the principle that both schools, in their approach to social and economic events, draw upon other disciplines whilst acting in accordance with critical realist logic.

POST-KEYNESIAN THEORY ’S CRITIQUE OF CONTEMPORARY NEOLIBERAL AND CAPITALIST POLICIES AND THE STRUCTURAL ALTERNATIVES IT OFFERS

The negative aspect of the relationship between economic growth and distribution is most evident in the context of income inequality. Rapid growth has not been effective in preventing inequality and poverty in distribution, as neo-liberals claim. The unwritten rules governing income distribution and the relationships between institutions and people influence economic growth within the framework of “inclusive development ". A clear understanding of the two-way link between inequality in social life and economic changes is central to the main arguments regarding economic growth and income distribution. Inequality in the distribution of human capital also hinders economic development. With the support of high-quality institutions, the low-income segments of society are not unduly affected by adverse conditions. In societies where social solidarity and mutual trust suffer in societies where these are lacking (Easterly, 2001, pp. 135–157). Institutions that are inclusive rather than exclusionary ensure sustainable and inclusive growth. Furthermore, reducing poverty and tackling income inequality are also crucial for the efficiency of the market economy (Acemoğlu & Robinson, 2008) .

In this context, the criticisms and alternatives offered by Post-Keynesian theory to neo-liberal and capitalist policies include:

Income Inequality and Social Injustice:

Criticism: Post-Keynesian theory emphasises that neo-liberal policies increase income inequality and neglect social justice. Tax cuts for the wealthy, welfare state cuts and free-market-oriented policies deepen the gap in income distribution.

Alternative: Post-Keynesian theory focuses on policies to reduce income inequality by proposing measures such as progressive taxation, increased social spending and maximum wage policies. Expenditure that balances income distribution must also be implemented to ensure the stability of aggregate demand.

Financial Crises and Regulation:

Criticism: Neoliberal policies lay the groundwork for financial crises by supporting the deregulation of financial markets and the reduction of regulations. According to them, interest rates and the allocation of credit to the public or private sector, or across sectors, should be determined by the market. Consequently, capital and savings are positively affected. High real interest rates will boost savings and the average productivity of capital, thereby positively influencing growth.

Alternative: Post-Keynesian theory advocates for strict regulation of financial markets and the control of speculation. Furthermore, it advocates for central banks and the state to steer the economy and intervene during crises. Regarding the liberalisation of financial markets, it highlights the negative effects of uncertainty, financial fragility, increased crisis risk, asymmetric information, adverse selection and moral hazard. The risks of such policies were evident prior to the 2008 global financial crisis.

The Privatisation and Structure of Public Services:

Criticism: Neoliberal policies encourage the privatisation of public services. This leads to restricted access to essential services and profit-driven practices in privatised sectors.

Alternative: Post-Keynesian theory argues that certain essential services must remain public. It maintains that the state should play an active role in sectors such as education, healthcare and infrastructure, and that fair access to public services must be ensured. Such expenditure also has a positive impact on efficiency and contributes positively to growth and private sector investment. Payments allocated for the training of the unemployed also lead to the creation of skilled employment, and the crime rate decreases.

Fiscal Discipline:

Criticism: Neo-liberals interpret fiscal discipline as the need to reduce budget deficits—such as those arising from inflation and balance of payments deficits—as these lead to macroeconomic imbalances.

Alternative: Post -Keynesians, however, do not advocate a contractionary fiscal discipline. On the contrary, they favour controlled public spending to achieve full employment. Furthermore, state investments have a complementary function to private sector expenditure without causing a crowding-out effect. When the Central Bank allocates reserves as loans to the real sector, the additional pressure on interest rates caused by public spending can be prevented. (Nevile, 200 3).

Tax Regulations:

Criticism: Neo -Liberal system features tax cuts specifically targeting the rentier class or major capital holders. The aim is thus to strengthen the supply side of the economy. Consequently, the proportion of indirect taxes is also high in practice.

Alternative: Post-Keynesians approach the prevention of tax evasion and the establishment of a sound tax system from the perspective of reflecting society’s social and cultural infrastructure. (Marangos, 2012, pp. 583–609). In particular, Kalecki demonstrated that the taxation of profits and wages in the short term positively affects investment through expenditure—which determines total profitability in the long term—by indirectly contributing to the share of wages in national income. Furthermore, Post-Keynesians argue that real wages are determined in the goods market and that taxes on profits and wages should be determined based on the business sector’s response to mark-up rates.

General Structural Alternatives:

Firstly, Post-Keynesian theory proposes that the state should support economic growth by increasing public expenditure and strengthening employment policies. These measures can boost employment by generating demand, particularly during periods of recession. Secondly, Post-Keynesian theory advocates for the strict regulation of financial markets and the accountability of financial institutions. This also aims to prevent speculation and ensure financial stability. Thirdly, it calls for increased social spending and investment in essential services such as education and healthcare. This, in turn, reduces social inequality and raises people’s living standards. Fourthly, it supports investment in environmentally friendly technologies and sustainable energy sources. This approach is designed to both encourage economic growth and ensure environmental sustainability.

Regarding exchange rates, Post-Keynesians state that there is no balance in international trade, that a new mercantilist hegemony prevails, and that exchange rates are determined by portfolio investors—many of whom have speculative aims—concentrated in certain countries. This leads to increased volatility in exchange rates, thereby exacerbating imbalances. For this reason, Post-Keynesians propose an adjustable floating exchange rate system within a framework of strict capital controls for both industrialised and developing countries (Chang and Grabel, 2004). Regarding foreign trade, they argue that states should protect their infant industries and implement supportive export incentives, prioritise productivity, and pay attention to balance of payments deficits to avoid debt and currency crises.

They also note that high inflation and unemployment resulting from trade deficits or currency crises will exacerbate poverty (Marangos, 2012, pp. 583–609). 2008). In direct investment, they recommend prioritising those that contribute to domestic balance, profit transfer, technological accumulation, know- how, and value-added activities, whilst in the case of indirect investment, they recommend steering clear of those appearing to be short-term and speculative in nature, and looking to countries such as Taiwan, Korea and China, which have achieved successful development through strict supervision and regulation. They do not advocate for the state to withdraw from the broader economy through privatisation or by simply prioritising the private sector. They do not support the view that the state is ineffective or causes massive deficits. They point out that many European countries still hold significant shares in the broader economy. They argue that a certain proportion of public ownership is necessary for growth.

They contend that reducing wages or having flexible labour markets is not essential for productivity and the profitability of investments, on the contrary, they emphasise that a labour market grounded in legal frameworks and worker-friendly conditions, coupled with a minimum wage that comfortably exceeds inflation and ensures basic living standards, alongside strong bargaining power, freedom of association and high unionisation rates, are factors that boost growth. They support measures such as land reform due to the broad-based distribution of ownership and the importance placed on small businesses. Furthermore, they point out that every country possesses an institutional framework shaped by its democratic and political structure and rooted in its socio-economic history, and that these institutions must be developed in accordance with human rights and democratic liberal values. In short, Post-Keynesian theory proposes more comprehensive, socially just and sustainable economic and social policies as an alternative to neo-liberal policies.

The Future of Post-Keynesian Theory and New Areas of Interest

Opening up new horizons and advancing Post-Keynesian theory is only possible by developing new approaches and updating the theory. In this context, by examining the interaction of Post-Keynesian theory with non-economic factors (such as sociology, environmental sciences, political science, etc.) in greater depth, adopting a multidisciplinary approach could facilitate a broader understanding of the theory. For example, Post-Keynesian theory must develop new models and analyses focusing on environmental sustainability and the green economy, and provide policy recommendations for sustainable development in order to better understand the economy’s environmental impacts. Furthermore, updating the theory’s models regarding financial instability and crises, and developing new theoretical frameworks that better accommodate the complexity of the global financial system, will . Alternatively, examining how to respond to technological changes such as the digital economy, artificial intelligence and automation, and how these factors influence economic dynamics, would be useful in seeking solutions to the prominent issues of today’s economy. Furthermore, developing more comprehensive models on issues such as international trade, capital movements and exchange rates, is crucial for understanding the complexity of the global economy and proposing more effective policy recommendations. A better understanding of how cultural factors, social norms and values interact with economic processes enables the incorporation of cultural and social dynamics into economic decision-making processes. Finally, developing more effective policy recommendations on issues such as income inequality and social justice will contribute to making economic policies fairer and more inclusive. These approaches will undoubtedly accelerate the evolution of Post-Keynesian theory and, of course, social and environmental challenges.

On the other hand, Post-Keynesian thought has gained prominence among heterodox economic approaches, particularly in developing solution-oriented alternatives in the wake of crises. The contradictions faced by capitalism today, alongside the persistence of concerns that the economy will remain in a state of stagnation despite a considerable amount of time having passed since the crises, necessitate to be addressed and advanced on a broader plane. Meanwhile, it is necessary to work on the criticised aspects of Post-Keynesian thought to enable it to find more comprehensive solutions. Indeed, as new problems emerge due to the contradictions currently facing the global economy, the tendencies towards ‘explaining reality with scientific consistency’ and ‘multi-faceted progress’ have become subjects of constant debate within the theory, and studies focusing on what new critical directions should be taken have gained prominence (Gürkan, 2016, p.32). In relation to this topic, Stockhammer and Ramsk ogler (2009, p.227), in their joint article titled “Post-Keynesian Economics: How to Move Forward – How to Take Post-Keynesian Economics Further”, which seeks to address the idea of updating Post-Keynesian theory, discussions must be expanded based on new findings, and the theory must be adapted to the present day.

Alongside this, the Post-Keynesian theory’s collaboration with other schools of economics and its efforts to address the current problems of capitalism must be approached through different methodologies. For example, similarities with and influences from Marxist thought can be observed in this context. A connection can be established between the two schools of thought, which both treat capitalism as their primary subject, via Kalecki (King, 2013, p.503). Similarly, building on Minsky’s (1996) proposition that “the fundamental object of study in Post-Keynesian thought is capitalism”, it is possible to increase collaborative work regarding critiques of capitalism and alternatives to neo-liberal policies. The Post-Keynesian theory should also collaborate with heterodox schools of thought that approach economic analyses from different angles, such as “Institutional Economics”, “Feminist Economics”, “Ecological Economics”. Such collaborative work on similar themes will advance Post-Keynesian scholarship in terms of political, social and economic analysis.

On the other hand, within the framework of the issues mentioned above, it is also necessary to clarify the relationships between Post-Keynesian thought and the extensions of mainstream and critical heterodox theories. For instance, we might cite the idea that it should not entirely disregard mainstream theory as the first suggestion at this point (Stockhammer and Ramskogler, 2009, p.228) . These two economists have, in fact, stated in their article (Stockhammer and Ramskogler, 2009, p. 239) that the theory must serve as an alternative to mainstream thought. Furthermore, according to the methodology developed by these two authors, Post-Keynesian theory must enter into a more structural partnership with critical heterodox thought. Moreover, the critical tradition and Post-Keynesian economics address far more common issues within the framework of real economic problems than mainstream economics does.

Another key area of interest in recent Post-Keynesian economic literature is the disruption of ecological balance, environmental degradation and pollution (Fontana and Sawyer, 2016). As Stockhammer and Ramskogler (2009) have also emphasised, the theory must offer policy proposals focused on solutions to the relationship between capitalism and environmental destruction. Furthermore, the findings derived from proposals evaluated under the heading of ‘wage-led growth’—aimed at restoring healthy economic growth—are also directly related to ecology (Stockhammer and Onaran, 2012, p.17).

Other issues that Post-Keynesian economics should address include topics such as “the problem of power, governance and the state”. As Kalecki (1943, p.326) has consistently emphasised, the problems encountered in achieving full employment generally do not stem from economic reasons; political factors are also influential in this regard. What I mean is that, within the framework of the “idea of the public sphere” (Gürkan, 2016, p. 33) compels the state to act seriously and proactively on employment issues; -Keynesian theory, there is a significant issue regarding the analysis of the state within the context of political economy. In a social order where the public sector fails to create sufficient employment, lacks clear social security provisions, cannot ensure healthy working conditions, and is unable to provide adequate wages (Chomsky, 2012, p.338), this problem becomes even more structural. According to the American theorist Nancy Fraser, the developments arising from the 2018 global viral pandemic also highlight this need. Political developments during that period—such as the election of a Republican president in the US, the outcome of the Brexit referendum in the UK resulting in withdrawal from the EU, the rejection of Prime Minister Matteo Renzi’s social reforms in Italy, and the rise of far-right parties across Europe—alongside the economic crisis demonstrate that a political ‘crisis of existence’ has also emerged for social groups such as low-income communities or migrants (N. Fraser, 2017, p.59). The British journalist P. Mason has also stated that ‘what needs to be done, therefore, is to go beyond economic criticism’ (Mason, 2017, p.127). Indeed, if we consider the conceptualisation of “terminal crisis” (Arrighi, 2010, p.367) used by the Italian economist Giovanni Arrighi regarding final crises, arguments that the system itself has actually reached an end or that we have entered a period termed ‘Post-Neoliberalism’ can be discussed in detail. Furthermore, exchanges of ideas on these topics will take us beyond the dominant paradigm. Ultimately, conducting a wide-ranging discussion on the issues at hand would be extremely beneficial (Bauman, 2017, p. 43; Rendueles, 2017, p. 168).

The first theme to be addressed is the reality that the major changes brought about by recent history will have destructive effects. For instance, political crises have compounded the 2008 economic crisis, and it has been observed that states’ sovereign rights are gradually diminishing within the framework of globalisation. Former Fed Chairman A. Greenspan remarked on this matter “It no longer matters who becomes president in the US because the world is governed by global markets.” The German economic sociologist, W. Streeck, described this situation within the global financial sector, which is in the hands of certain groups, as “great regression”, and has noted that such a global system of injustice—where just one per cent of the world’s population holds 50 per cent of global GDP—is no longer sustainable. In short, constructive alternatives must be developed across all economic and social spheres, and the negative consequences resulting from neoliberal policies must be addressed (Rendueles, 2017, p.180; Streeck, 2017, p.182).

Furthermore, in today’s world where economic inequality has reached serious levels, creating constructive alternatives has become of paramount importance. In this regard, the thinker N. Chomsky (2012, p. 345) notes that the failure of heterodox policies—which he refers to as the ‘collapse of mainstream politics’—to produce sufficient alternatives and their consequent ineffectiveness have led to serious consequences. Indeed, in situations where no alternative economic promises are offered to society, the argument for monetary tightening has become a standard practice. The implementation of uniform IMF policies has also eroded economic sovereignty. Ultimately, populist leaders shaping politics in many states have begun to make efforts to regain economic sovereignty, having realised that their countries have become hostages to global agreements, international finance or multinational capital (Appadurai, 2017, p.21). Even the efforts to re-establish lost economic sovereignty serve to prevent the injustices caused by neo-liberal policies and enable those on low incomes to regain the opportunities they have lost (Illouz, 2017, p.86).

Furthermore, the re-establishment of economic and socio -cultural sovereignty has encouraged people to embrace happiness and sharing rather than the selfishness of the ‘economic man’ who, as classical economic theory suggests, thinks only of his own interests. Such a structure represents a far healthier society than the destruction wrought by the neo-liberal transformation in the individual’s world. As the American Marxist thinker David Harvey puts it, the destruction of space—which is —and the physical structures of space that constitute the most important elements of our shared memory—is being erased by the message that space is insignificant, leading to a process of isolation in which the quest for a shared identity is exhausted (Mason, 2017, pp. 113–115) . In this regard, the neo-liberal perspective has created a synthesis that is compatible with capitalism and appears perfect by prioritising the individual over the collective (Mason, 2017, p. 121), and the individual has been made compliant with the economic order. This transformation, which Marx “the brutalisation of the self”, this transformation is in fact a reversal of identity (Berman, 2014, pp. 25–31). The individual has been ostensibly sought to be emancipated, yet in reality, slavery has been perfected (Berman, 2014, p. 59). Furthermore, within the market order, the principles of the free market have been internalised, and the individual has found themselves in a state of constant competition. As the German sociologist and Marxist Max Horkheimer described it as the “embodiment of instrumental reason” , everything has been subjected to a means-end logic and the phenomenon of controlling nature, the masses, political structures, etc., and the neoliberal order has been declared to be without alternative. (Nachtwey, 2017, p.161).

Updating the Theory

In order to update Post-Keynesian thought and ensure it better aligns with economic realities, the theory must better understand the complexity of financial markets and digitalisation. It is also important to develop a framework that incorporates new phenomena such as high-frequency trading and cryptocurrencies, as well as financial innovations. In this context, a more comprehensive analysis of the international economy, incorporating factors such as global trade, capital movements and exchange rates, would be more appropriate for a globalised world. Developing a more comprehensive framework that includes environmental sustainability and the green economy would enable Post-Keynesian theory to better integrate environmental factors and sustainable development. By examining the impact of the digital economy and technological changes on economic dynamics in greater detail, and by focusing on issues such as artificial intelligence, automation, digital platforms, it is important to refine how Post-Keynesian theory explains these changes. The theory must also better adapt the role of state intervention and public policies to meet today’s economic needs. In particular, it is essential that it offers a perspective incorporating more effective public policies in areas such as combating inequality, adapting to technological change, social security and education. Furthermore, Post-Keynesian theory must better understand cultural interactions within economic decision-making processes and incorporate social factors into its analysis to better grasp social and cultural dynamics. Another area for updating involves are agent-based models designed to understand how complex linkages at the microeconomic level can influence macroeconomic outcomes.

Furthermore, the theory can respond more effectively to financial crises, recessions and economic instability by developing models suited to economic crises and global fluctuations. These steps are crucial to ensuring that the updating of the theory can provide better responses to the complexity of the economy. In this process, collaboration among scholars from different disciplines and the function of ensuring the theory is applied more effectively in practice will play a significant role. Furthermore, towards this aim, the ‘Capital Management Techniques’—which, since the 1990s , which reduce financial fragility and crisis risks, help ensure macroeconomic stability, and share the same objectives as the theory.

Similarly, the theory should expand its solution-oriented proposals to include new aspects such as “reducing the working day or hours, making post-retirement savings significantly more profitable through pension contributions managed by professionally run funds using various instruments and investments, the democratisation of finance, the provision of direct employment by the public sector, the expansion of the framework and functions of social security, taxation of capital and high-income groups,” and other new issues.

In addition to these, it is necessary to explore ways to integrate the missing Sraffian “super multiplier” with the Keynesian concept of “endogenous money.” -Keynesian concept of “endogenous money” must be explored. Clarity must be brought to how markets are calibrated and, more specifically, how the role of flexible prices is perceived. Regarding the arbitrary acceptance or rejection of the price mechanism, whilst all Post -Keynesians appear to be in agreement regarding the rejection of the flexibility of real wages when addressing unemployment issues, yet they appear quite at odds when it comes to applying price flexibility through monetary policy and interest rates in money markets. Research on this topic is also required. It is also necessary to examine the significant lack of consensus regarding the fundamental vision of how capitalist economies function. The use of econometrics, viewed merely as a tool rather than an end in itself, can be promoted by interpreting it within a non-ergodic system framework in line with the AER approach within a non-ergodic system framework and by interpreting it through critical realism.

Furthermore, Post-Keynesian economists generally believe that internal destabilising forces are at play and that price mechanisms generally cannot cope with them. In this regard, multiple equilibria may emerge, including financial crises and unemployment situations, therefore, it must also be explained how government interventions and the regulation of market forces should be structured. To reduce unemployment, it is necessary to work directly on the rates, rather than through prices or wages. From a monetary policy perspective, Post-Keynesians appear divided on the use of interest rates. Some advocate for fine-tuning provided there is a genuine target variable (Rochon and Setterfield, 2008, pp.2–25) . Others, however, explicitly acknowledge that conducting monetary policy via flexible interest rates through fine-tuning is not the correct approach. For example, Joan Robinson rejected the use of counter-cyclical monetary policy by defining it as a ‘misstep’ (Robinson, J., 1956). Lavoie also argued that monetary policy should not be designed to control the level of activity in response to the effects of interest rates on income distribution, but rather to determine the interest rate level appropriate for the economy’s income distribution. According to him, the aim of such a policy should be to minimise conflict over income shares and inflation (Lavoie, 1996, p.537). In this regard, Post-Keynesian writers generally believe that internal destabilising forces are at play and that price mechanisms generally cannot cope with them. Therefore, when multiple equilibria emerge—including financial crises and unemployment—government intervention and the alternative regulation of market forces are necessary.

Furthermore, Post-Keynesians agree that unemployment is determined in the goods market. In this context, to reduce unemployment, it is necessary to act directly on quantities, rather than through prices or wages. However, a similar logic should also apply to the money market. In Post-Keynesian theory, the price mechanism is also designed to function within stable systems. The general objective is not to guarantee an “Optimal Pareto Microeconomic” equilibrium (gaining a comparative advantage in terms of exchange rates), but to ensure general economic growth. For this reason, it is necessary to work directly on quantities—such as the labour force, credit supply and capital controls—rather than on prices.

In addition, Post-Keynesians are also divided regarding the role played by the exchange rate (Smithin, 2001, pp.114–125). Some have highlighted the destabilising effect of flexible exchange rates on inflation, particularly through pass-through effects, and have put forward arguments in favour of fixed exchange rates (Bougrine and Seccareccia, 2004, pp. 655–677). For example, J. Davidson defended this point by highlighting the possibility of policies that put neighbouring countries in a difficult position, stating: “A flexible exchange rate regime guarantees the sustainability of any ‘successful’ economy that pursues a mercantilist trade surplus policy for expansionary purposes, guarantees the survival of states that run persistent trade deficits and grapple with import financing problems. In a flexible exchange rate system, for every winner there is one or more losers” (J. Davidson, 1992, p. 207 and J. T. Harvey, 1991, pp. 61–71). Furthermore, it is not certain whether flexible exchange rates improve the trade balance. In this regard, capital controls must be employed to stabilise fixed exchange rates and capital flows (Vernengo and Caldentey, 2020, pp. 332–348). In this context, Post-Keynesians must also undertake research to resolve the (the inconsistency of using fixed prices in one market whilst not using flexible prices in another) This is because price mechanisms are designed to create stable systems. The overarching objective is not to guarantee an ‘optimal Pareto’ microeconomic equilibrium (i.e., to secure a comparative advantage in terms of exchange rates), but rather to ensure overall economic growth. Consequently, greater attention must be paid to the labour force participation rate, the ratio of credit to GDP, and capital controls.

Alongside this, there is broad consensus within Post-Keynesian economics that the essence of inflation lies in a distribution conflict with various potential triggers. From this paradigmatic perspective, inflation is always and everywhere a phenomenon of conflict. The distinction between demand -pull, profit-demand-push, wage-cost-push, tax-push, imported-goods-push, currency-devaluation-push, etc. There is also a consensus on measuring distribution conflicts in terms of income policies and on aligning the wage share targets of workers and firms. In this context, monetary policies aimed at low and long-term interest rates , including redistribution policies targeting low-income households, and to prevent a current account deficit that could lead to a deficit, international coordination is also required. It is also known that the tradition of Keynes, Kaldor, Robinson and Marglin has faced some difficulties in explaining the correlation between rising inflation and rising profit shares . According to the tradition of Kalecki, Rowthorn and Dutt, however, such a correlation can be explained and has distinct origins that must be carefully distinguished. The reason for this is that many authors, when discussing profit or producer inflation, refer to increases in unit variable costs or in unit total costs at normal capacity utilisation.

Within the Post-Keynesian inflation theory tradition of Kalecki, Rowthorn and Dutt, there are significant differences between the two well-known prototype models: on the one hand, the Dutt, Blecker–Setterfield and Lavoie variant, and on the other, the Rowthorn and Hein –Stockhammer variant. These differences primarily concern differing views on the role of inflation expectations in wage inflation (adaptive expectations and under-indexation). Subsequently, differing conclusions regarding a stable price Phillips curve and a stable profit-squeeze distribution curve, as well as differing views on the existence of an internal and unstable inflation barrier (NAIRU). Furthermore, differing views emerge regarding the appropriateness of incorporating the real debt effects of unexpected inflation into the model. Models in the tradition of Kalecki, Rowthorn and Dutt are dependent on profit-squeeze and distribution curves, and involve wage-based demand and employment regimes. Moreover, the modelling framework is open to incorporating wage rigidity distributions and profit-driven demand and employment curves. The combinations and regimes leading to these differences warrant further investigation. Moreover, the limitations of a general model must be acknowledged when analysing energy and commodity inflation shocks, which we can only model as real exchange rate shocks.

Another , the other transformation taking place can be linked more closely to the concept of democracy. Globalisation’s restriction of national sovereignty is bringing about the end of liberal democracies, whilst elections manipulated by ruling elites under their control are becoming a means of abandoning democracy (Appadurai, 2017, pp.24 –28 and Krastev, 2017, pp. 98–99). Consequently, within the framework of the political and economic transformations discussed in detail above, Post -Keynesian theory must extend its solutions and policy proposals regarding current issues beyond the realm of political economy. Firstly, an alternative must be developed to counter the ‘failure of the state’ thesis—one of the key tenets of neo -liberalism, which is one of the fundamental pillars of neo-liberalism. Innovative measures should also be considered through the lens of securing incomes and public assistance for a minimum standard of living, increasing social benefits rather than military spending, and progressively taxing high-income earners more heavily (Saad-Filho, 2012, p.285; Beitel, 2012, p.286). A new financial system serving the real sector must be established (Chomsky, 2012, p.341, Dumenil and Levy, 2015, p.176; Saad-Filho, 2012, p.283). Furthermore, new forms of cooperation should be brought to the fore through a broad consensus among different classes based on democracy. Similarly, a new understanding of globalisation—one that is anti-neoliberal and citizen-centred—must be introduced. Building on the link between economic crises and neoliberalism, the argument that history did not end with neoliberalism must be developed (Dumenil and Levy, 2015, pp. 178–181; Saad-Filho, 2012, p. 269).

Furthermore, research should be conducted to clarify the reasons behind households’ extremely high levels of debt relative to their incomes. Solutions to global income imbalances, large current account deficits, and the suppression of aggregate demand due to income inequality; measures required to improve the incomes of wage earners; analyses on the more efficient use of transfers in the name of the welfare state, fairer tax systems that reduce indirect taxes, new measures to curb speculation in the financial sector, planning for technological production and human development, offshoring and outsourcing models, the importance of secular, scientific education, a healthcare system accessible to all, permitting the operation of private social insurance schemes that utilise income-generating funds within the social security framework, access to affordable housing, ensuring gender equality, and implementing the principle of positive discrimination for women across all sectors—these are areas where Post-Keynesians must engage in more active work.

In summary, the Post-Keynesian must be expanded in line with new developments to generate more alternatives to neo-liberal policies. In today’s economic order, where social inequality is rising and the principles of sustainable development are not being applied, this necessity has become even more crucial. Post-Keynesian thought must, in this regard, defend the state’s role in intervening and acting as a regulator and supervisor, and emphasise the need for a different world where social equality, democratic participation, fair income distribution and ecological sensitivity. For example, Post-Keynesian measures implemented in fiscal and monetary policies will ensure that the concept of the public sector is disseminated to a broad base. There is a need for theoretical discussions to evolve towards current and real-world problems and be made more concrete.

CONCLUSION

Post-Keynesians have made significant contributions to Keynesian economic literature by striving to adapt and expand Keynes’ ideas to today’s economic conditions. They do not endorse either unbridled capitalist or the more tempered form of neo-liberal free-market policies. Post-Keynesians argue that the unregulated market system, existing without regulatory bodies, drives people towards selfishness; that the state must adopt a more interventionist and socially oriented structure; that alternatives to neo-liberal policies exist; and that the system is inherently unjust, unequal and biased in favour of the powerful. Furthermore, they assess the effectiveness of the public sector in terms of creating a more social state and a more just social order in terms of income distribution. They argue that all of this can be achieved either by reducing the state’s contribution to GDP whilst increasing its effectiveness. Naturally, it is most appropriate to make choices according to each country’s specific socio-economic conditions. Within this framework, it is essential that Post-Keynesian theory be expanded in light of current issues and continuously renewed through studies that both transcend and encompass the discipline of economics.

Post-Keynesians advocate a social democratic capitalist system. This entails a diversity of ownership and a market economy operating within a democratic political system. Consequently, the Post-Keynesian theory—even if somewhat radical—should develop further alternative approaches by connecting with anti-capitalist theories such as Marxism through shared themes and similar emphases. In this vein, -Keynesian thought to reflect these issues more concretely, and by explaining the relationship between growth and distribution with clearer language than orthodox economists, would provide the theory with a significant advantage.

Ultimately, capitalism is a system that exacerbates global income disparities, creates an order favoured by multinational corporations, deepens poverty, and serves the aims of imperialism , and is by no means without alternatives. As we have previously noted, Post-Keynesian theory must seek reformist solutions to the current problems of capitalism. In my view, global economic problems can be resolved through Post-Keynesian policies. First and foremost, the focus must be on ensuring sufficient global demand to achieve global full employment and improve the global distribution of income. Furthermore, efforts must be made to prevent economic crises, permanently resolve the causes of crises, and ensure they do not recur. In this context, constructive proposals such as the establishment of a global central bank and, in particular, the implementation of a ‘Tobin Tax’ should be considered.

Attempting to resolve the vulnerabilities in the financial sector, high levels of unemployment and inflation—which stem from the structural flaws of the capitalist system—through neo-liberal policies that have been tried time and again is highly misguided. Instead, these issues must be addressed through tax-supported public investment or expansionary monetary policy, which can yield results in the short term. Furthermore, the regulation of the labour market through publicly organised vocational training courses, regulating the labour market through sub-optimal labour relations (subcontracting and flexible working), establishing regulatory bodies to increase competition in markets by eliminating mark-up pricing (competition authority, banking regulation and supervision authority, etc.), and implementing various regulatory measures such as the procurement of public service jobs (provided by NGOs) are required. Consequently, in advanced capitalist countries, the fundamental contradictions and crises of capitalist production and distribution relations can be overcome through monetary and fiscal policies, state interventions and New Keynesian ‘grand compromise’ (macro-corporatism) policies—characterised by widespread technological progress, high growth rates, improvements in health and social security, monetary and fiscal policies, state interventions and New Keynesian consensus (mezzo-corporatism) policies that enable trends towards increased purchasing power and reduced unemployment to gain strength. Furthermore, a radical restructuring of the international financial system is essential within the framework of “Global Keynesian” proposals. In this way, countries can regain control over fiscal, capital and monetary policies by regulating net international flows.

Developed countries must also redirect their current account surpluses, redirect their current account surpluses to less developed and developing countries through goods purchases, direct capital investments and aid for planned development. Persistent excessive current account or trade surpluses could also be fully taxed, with the resulting proceeds distributed among different countries. In this way, the unchecked flow of capital that leads to a global shortage of effective demand and the spread of financial crises can be prevented. The situation of civilising capitalism, reducing unemployment and ending recession, as Keynes desired, can be realised. Indeed, democratisation at the global level may even increase.

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