Working Paper No 879

repec.nep.his

n?u=RePEc:lev:wrkpap:wp_879&r=his

macroeconomic trends.

Does this mean that anything goes? Can any kind of abstraction be justified as appropriate

depending on the context of the questions we want to answer? The answer is negative. Lawson

(1989) provides two criteria that demarcate appropriate from inappropriate abstraction. First, the

abstraction has to be concerned with the real. A model or theory needs to suggest mechanisms that

are real (albeit abstract and thus by definition idealized) and are themselves subject to empirical

scrutiny. Second, the abstraction has to be concerned with the essential and isolate the most

important elements of reality.

The discussion of abstraction leads to one more conclusion: closure—the direction of causality

within a model—is a special form of abstraction. In reality all macroeconomic variables are

endogenous and therefore closure abstracts from the endogeneity of some of them. This

conclusion is important because we can evaluate if a closure is appropriate or inappropriate based

on the aforementioned methodological criteria.

The discussion of the abstract method allows us to go back to the Kaleckian model. First, I explain

that there is nothing specifically “Kaleckian” in the specification of the model. The assumptions

employed are relatively standard within the classical and post-Keynesian economic traditions. The

main innovation of the model is the hybrid closure that it employs, an eclectic combination of a

demand-led economy (investment has an autonomous status and does not just follow from saving)

and an emphasis on the role of institutions and social norms as the main determinants of

distribution of income.

This kind of closure is the only one among the main alternative closures (classical, neoclassical,

and neo-Keynesian) that can capture the three essential features of a real capitalist economy: i)

relevance of aggregate demand; ii) elastic supply of labor; (iii) and distribution of income

4

More magazines by this user
Similar magazines