Leaving the Church — Orthodox vs Heterodox Economics (1/2)

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Professor Anwar Shaikh suggests two styles of heterodox economics: one being a mere extension of orthodox economics, offering occasional criticisms and improvements, engaging in "departures", as Shaikh calls them, that really are loops coming from and leading back to the platform that gives mainstream economics its coherence. The second style of heterodox economics diverges fundamentally from orthodox economics.

[Beginning at 03:38 Shaikh explains:] 

What then should define heterodox economics? I think ... that it should be grounded in a different theoretical foundation. Now, of course, you'll come back to the same issues [of criticism of orthodox economics] ... but that shouldn't be done by means of starting from the general theory of orthodox economics and then kind of moving away a little bit at a time.

And here there are really only two basic options in terms of general theory [...] First one, of course, is Keynesian and Kaleckian theory.

What is important about it, is that it is constructed differently from neoclassical theory. It is not to be derived by putting imperfections in neoclassical theory; it is really a different theory. A Keynes particularly saw himself clearly as creating a different foundation for economics—not merely a modification of standard theory. He saw himself as overthrowing the standard theory and creating something else. And that's why he called it the General Theory.

The key point in Keynes's argument is that aggregate demand is the ultimate limit to production and employment. Unemployment can be a normal state of affairs in a capitalist economy, Keynesian theory and Keynes himself ... was strongly pro-capitalist — and that's an important feature of Keynesian theory because it makes it much more acceptable to orthodoxy ... The market and the state will together will achieve the promise that the orthodoxy offers in terms of the state: which is full employment growth and price stability ...

From this comes a fundamental role of the state as regulator of the market, the state as a potentially neutral referee ...

And I would say that Keynesian theory is the dominant point of view of the heterodox tradition.

[05:35]

Continued here.