In a great book “Capitalism and Its Economics”, the author, Douglas Dowd, writes on the shift in economic ideologies.

“There had been a few promising contributions early in the century. Interestingly enough, the most useful were produced by two of Veblen's students, J.M. Clark (son of the very mainstream John Bates Clark) and Wesley Clair Mitchell. Clark wrote the still useful Studies in the Economics of Overhead Costs (1923), of which more in a moment; Mitchell's main contributions were in his Business Cycles (1913) and in his major role in creating the National Bureau of Economic Research. He is seen as one of the key figures of "institutional economics," inspired by Veblen's works.

Clark's Studies sought to accomplish two major tasks: to adapt the (micro) theory of markets to the existence and functioning of modern technology and big business, and to move toward a reality-based integration of micro and macro theory. What he accomplished in that pioneering book was real. Just as real was the manner in which the economics profession ignored all elements of his work - made all the more interesting by the fact that his father was one of the titans of neoclassical economics.

We have seen that as the 1930s opened, the large corporations were being taken into account - in the United States by Berle and Means, and then by the TNEC. In those years, Keynesian theory and policies were accepted only by a minority of economists or policy-makers of the main industrial nations; after the war, that minority had become a majority, even in the United States (if narrowly so). The relatively weak momentum of the late 1930s had, by the late 1940s, become increasingly strong. It may be said that by the 1950s (at least in the strongest universities) economists consciously seeking to displace the dominance of neoclassical theory and policy were in the ascendant and, for a while, solidly influential. Out of that came the "school" called "post-Keynesian."

Post-Keynesian economics

First, the name itself: Keynes himself was concerned with aggregative, "macro" theory, as he sought to understand and overcome the depression. The post-Keynesians are concerned with all elements of theory: macro, to be sure, but also "micro, distribution, and trade theory." In short, the post-Keynesians have sought to develop an integrated theory that can answer the question earlier put here as to what should constitute economics: “What do we need to know about the economy, and what must we do to have it serve the needs of people, society, and nature?"

One of its most active participants has identified the post-Keynesians well:

Its members represent the coming together of several dissident traditions within economics - that of the American institutionalists and the continental Marxists, as well as that of Keynes’ closest associates. Their work, taken together, potentially offers a comprehensive and coherent alternative to the prevailing orthodoxy in economic theory, an orthodoxy which, because of its lack of relevance, stands as the principal obstacle to intelligent economic policy.

One of the major concerns of the post-Keynesians centered on the ability of business giants (and strong unions) to control their markets in some significant degree, rather than being controlled by them. The work done in the 1930s (including that of the TNEC) was instrumental in helping to construct a sound empirical base for analysis; that analysis by the late 1940s was already in the process of formation, and it centered on oligopoly. That term signifies the existence of a few firms in a given industry whose small number enables them to make explicit (or implicit) agreements that prevent price competition and allows them to “administer" their markets. Such practices are totally incompatible with the theorems of neoclassical economics, which assumes away even existence of such structures, let alone their dominance.

The liveliness and usefulness of post-Keynesianism was effectively shunted aside in the universities as the “corporate counter-attack” among other things brought neoclassicism back into favor. The new group continued and continues to function, even though without the recognition that would give them access to significant numbers of students and teachers, or those in the political world. That could change for the better, if and when a new crisis emerges. Here it is worth providing a summary of what may be seen as their working hypotheses, as seen in the excellent study of Stephen Rousseas:

the basic tenets of American post-Keynesian economics ... are: 1) the pervasiveness of uncertainty as distinct from calculable risk; 2) the historical time within which production and all other economic events take place in an irreversible fashion; 3) the existence of a credit money economy of forward contracts in which the money supply has virtually a zero cost of production; 4) the setting of individual product prices as a mark-up over unit prime costs in the dominant oligopolistic sector operating with planned excess capacity; 5) the irrelevance of demand-supply analysis to labor markets, and the key dependence of the general price level on nominal wage rates determined exogenously under collective bargaining; 6) the endogenous nature of the money supply; and 7) the inherent instability of capitalism.

Radical political economy

The single most stimulating work in the realm of radical analysis in this period was Baran and Sweezy's Monopoly Capital (1966), on which so much of the analysis (and much of my other work) has depended. A few additional observations regarding their contribution are worth adding here.

In the years following World War II, the authors were the most influential of English-speaking Marxist economists. In order to accomplish a long-standing need to update (one may say renovate) Marxian analysis, they changed its temporal focus to the 1950s and its location from Britain to the United States. Accordingly, they also broadened the very definition of "Marxian" political economy - all of this exemplified in their title: Monopoly Capital: An Essay on the American Economic and Social Order.

In their analysis of the social order they stimulated a substantial number of others to push ahead more deeply into the various elements of the "social formation" constituting the capitalist process. Among the earliest and most influential of such studies were those of James O'Connor, Harry Magdoff's The Age of Imperialism (1969), Harry Braverman's Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century (1974), Herbert Schiller's numerous studies of the media, including Mass Communications and American Empire (1971) and The Mind Managers (1974), and, among other works, an excellent book of broad-based readings put together by Richard C. Edwards, Michael Reich and Thomas E. Weisskopf, The Capitalist System (1986).

In Britain, beginning earlier and continuing to the present, a "New Left" emerged. As it took hold, it owed much to the works of economic historian R.H. Tawney (1880-1962), beginning with his The Acquisitive Society (1920) and Religion and the Rise of Capitalism (1926) and extending through all his writings and including his long association as a teacher with the Workers Education Association until his death in 1962.

Tawney was anti-capitalist but not a Marxist, but the New Left movement in Britain, and its journal New Left Review were and remain a lively source of Marxian "renovation," with important contributions from (among many others), Perry Anderson, Ralph Miliband, and Eric Hobsbawm.

The most lasting and significant development in Marxian thought in Europe - in my judgment - was the major contribution of Antonio Gramsci. His work - notably his Prison Letters and The Modern Prince - became well known only in the 1960s, when they were translated and published in Europe, Britain, and North America.

Gramsci's most relevant ideas for our time. Suffice it here to say that, perhaps uniquely among Marxists in his lifetime, Gramsci insisted on the need to go well beyond the political economy of Marx and the politics of Lenin if there is ever to be a political movement that can gain and hold power for a democratic socialist society.

Up with the old

The economic crisis of the 1970s could conceivably have led to a strengthening of left-of-center politics; instead, quite the opposite occurred. Initially led by Margaret Thatcher in Britain, there was an upsurge in conservative political strength, soon to be even more effectively voiced by Ronald Reagan in the United States. Their conservative to rightist policies were given their rationale by the doctrines of Milton Friedman and his academic and political disciples.

Already in the early 1980s, what had been substantial diversity in economics departments and in government had given way to an effectively conservative domination of both areas - much assisted by supportive changes in the tone and content of media fare. Nor did it hurt their cause that (especially, but not only in the United States) all kinds of dissent had been stultified in the academy and in politics by three decades of Cold War and variations on its surviving McCarthyism.

Combining the powers of priest and mandarin, the devout supporters of laissez-faire vehemently opposed any influence whatsoever by government in the economy at home or abroad - except, of course, for milex and whatever was seen to assist business at home and abroad.

Friedman was already well known in the 1950s and famous in the 1960s - but mocked as much as praised at that time. His Capitalism and Freedom (1962), essentially his updating of Adam Smith cum Alfred Marshall and the right-wing Austrian Ludwig von Mises, was much spoofed when first published. As the 1980s began, it had already taken on biblical proportions. Herewith, an apt summary in 1979, by E.K. Hunt:

Milton Friedman advocates the elimination of 1) taxes on corporations, 2) the graduated income tax, 3) free public education, 4) social security, 5) government regulations of the purity of food and drugs, 6) the licensing of doctors and dentists, 7) the post office monopoly, 8) government relief from natural disasters, 9) minimum wage laws, 10) ceilings on interest rates charged by usurious lenders, 11) laws prohibiting heroin sales, and nearly every other form of government intervention that goes beyond the enforcement of property rights and contract laws and the provision of national defense.

In the United States (if to a considerably lesser degree elsewhere - up to now) almost all that program has been adopted wholly or partially, except for one item - the one that might make sense - the legalization of heroin.

As that return to the politics of the 1920s was taking place, economics was moving in step. As the 1980s began, economists could say, "We're all good neoclassicists (again)." Those who were not, and there were many, were relegated to the sidelines (again)."