POST-KEYNESIAN AND AUSTRIAN CRITICISMS

Post-Keynesian and Austrian criticisms

Post-Keynesian and Austrian criticisms

Critical Analysis

The recent economic policy reforms initiated by the government with the intention of moving the economy towards more market orientation have led to a debate among Indian economists on the efficacy and need for free markets and the role that the government should play in the economy. The debate has been mostly centred on the proponents of two theoretical standpoints-the Neoclassical and the Marxian. We look at the debate from two other theoretical frameworks-the Modern Austrian and the Post-Keynesian (Veblen, 2002). We find that these two frameworks provide perspectives on the nature and role of the market process and the role of the government that is quite different from the Neoclassical and Marxian viewpoints. The Modern Austrians and Post-Keynesians view the market as an open-ended evolutionary process and thus provide a rationale for 'free markets' that go beyond the Neoclassical focus on 'efficient resource allocation' and 'pareto optimality' (Veblen, 2002). The Austrians stress the role of the price system in achieving 'the economy of knowledge' and the importance of competition and the market process as a discovery procedure. The Post-Keynesians highlight the creativity and spontaneity exhibited by market participants in the presence of fundamental uncertainty of the future. The Post-Keynesians also envisage a role for the government which is different from the Neoclassical and Marxian views. Unlike the Neoclassicals, the Post-Keynesians call for an activist government. Unlike the Marxians, the Post-Keynesians argue for non-intervention by the state in the capitalist production process (Antonietta, 2007).

There are two avenues of criticism that one might take with respect to neoclassical monopoly theory. In the first place, one might criticize the purely competitive model which is employed as a benchmark and as a basis of comparison with monopolistic situations. And secondly, one might criticize the whole concept of non-legal barriers to entry, arguing, instead, that it is simply consumer preference that "limits competition" and that, consequently no misallocation of resources occurs.

Most economists would agree that pure competition is not actually possible. Some would agree, perhaps reluctantly, that it might not even be desirable or optimal if it could exist. (If they agree to this, of course, then they must also agree that moving toward pure competition is not necessarily desirable, either.) But few economists have noticed or emphasized the fundamental flaw of the purely competitive model, namely, that it is not a description of competition at all (Blinder, 2005). Pure competition is a static, equilibrium condition whose very assumptions are such that competitive process is ruled out by definition. Or to put the matter more charitably, while pure competition may describe the final outcome of a particular competitive situation, the ultimate end result, it does not describe the competitive process that produced that particular outcome. The purely competitive theory is not a theory of competition as such (James, 2007).

The neoclassical habit of confusing competitive process with a final, static equilibrium condition makes for gross errors in economic ...