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6 - An alternative theory of economic policy

Published online by Cambridge University Press:  14 January 2010

Heinrich Bortis
Affiliation:
Université de Fribourg, Switzerland
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Summary

In the preceding, theoretical, chapter the classical-Keynesian and the neoclassical approaches have been compared with respect to content and method. In this policy chapter the question as to which of the two approaches provides more secure foundations for socioeconomic policies naturally arises. In the initial section the different equilibrium notions associated respectively with the two approaches are taken as a starting point for discussing this question. This is done in the light of the arguments set out in the preceding chapters which seem to suggest that classical-Keynesian political economy ought to be preferred to neoclassical economics as a basis for policy actions.

Classical-Keynesian or third-way economic policies require a positive theory in order to explain given situations and a normative theory to fix the aim of policy actions. The former was sketched in chapters 3 and 4 while the latter is outlined in the second section of the present chapter. In the subsequent main section some policy principles along classical-Keynesian lines are set out. The emphasis is laid on long-period policies associated with the organization of the socioeconomic system.

The notion of equilibrium and economic policies

From the preceding chapter it emerges that the notions of equilibrium implied in neoclassical economics and in classical-Keynesian political economy are entirely different. This implies that the explanations of facts and the respective policy prescriptions also diverge. In this section the equilibrium concept contained in each approach is elaborated further to prepare the ground for comparing some policy elements associated with the two approaches. This provides the basis for selecting the more suitable approach to economic policy-making.

Type
Chapter
Information
Institutions, Behaviour and Economic Theory
A Contribution to Classical-Keynesian Political Economy
, pp. 308 - 348
Publisher: Cambridge University Press
Print publication year: 1996

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