Compare and contrast Keynesian perspectives on finance and the causes of financial crisis with those of post Keynesian perspectives. According to each perspective, what might be the key concepts or processes pushing the economic or financial system toward or away from financial crises? What are the implications for theory and/or policy that flow from differences between these two schools of thought?
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To answer this question, it is important to understand the different perspectives forwarded by the Post Keynesian economists against the Keynesian perspective. There are a variety of perspectives that are contrary to the Keynesian perspective developed by different scholars of economics, but I will focus on contributions by the two notable Post Keynesian economists namely, Alfred Eichner and Jan Kregel.
Alfred Eichner challenged the neoclassical price mechanism which proposed that commodity prices be set through the market forces of supply and demand. He instead proposed that these prices be set according to mark up pricing which involves adding a percentage to compensate or earn a profit for the business after incurring costs. According to Alfred, economic development is determined by the level of investment by businesses, as this would avoid financial crises since the economy is dependent on their input. Contrary to this, increasing public spending and government involvement as proposed by Keynes would eventually lead to financial issues in the long run.
Kregel and Eichner have had similar perspectives that offer alternative opinions to those forwarded by Keynes. Kregel’s research and publications have concentrated on the cause and effects of financial crises as a result of economic instability. According to Kregel, markets should be imperfect and exhibit considerable monopolistic elements to avoid financial crises and maintain their stability. This perspective is however contrary to Keynes’s which holds a microeconomic base should be made up of perfect markets.
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