Theoretical Practice and the Foundational Level of Macroeconomic Analysis: Reflections on the Work of Fernando Cardim de Carvalho

ABSTRACT

This paper celebrates the contributions to Keynesian theory of the late Brazilian economist Fernando Cardim de Carvalho (1953–2018). We use Carvalho’s 12 refereed English-language papers on Keynesian theory — the first published in 1983, the last in 2016 — as a point of departure for reflecting on two questions confronting macroeconomists today. First, what is the work of the economist — in what does economic analysis consist? Second, in this post-crisis era, how might macroeconomics — and specifically Keynesian macroeconomics — be rebuilt? Carvalho’s writings show that the work of the economist can be as much about understanding the raw elements of human behavior in the real world — what we will call the foundational level of analysis — as about constructing models depicting the momentum of economic systems incorporating these behaviors. Adopting this approach to the practice of theory leads to insights and frameworks that would be lost if macroeconomic theorizing were equated with formal model building: it will enrich exchanges among economists, deepen the conceptual roots of Post Keynesian macroeconomics, and facilitate interdisciplinary exchange.

KEYWORDS:

• Post-Keynesian economics
• uncertainty
• decision
• liquidity
• macroeconomic theory
• mathematical models
• economics of Keynes

JEL CLASSIFICATION:

• B00
• B50
• D81
• E00
• E12

Acknowledgements

The authors would like to thank participants in the 2019 conference of the Associação Keynesiana Brasileira, UNICAMP, Campinas, Brazil and the referees of this journal for insightful comments on preliminary versions of this paper.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Fernando Cardim de Carvalho is referred to as Cardim inside Brazil, and as Carvalho elsewhere. Here we follow the latter convention.

2 The endogeneity of money itself is not sufficient to anchor a Keynesian analysis; Arestis and Sawyer (2003) point out that many neoclassical macroeconomic models incorporate a tame form of money endogeneity.

3 Carvalho published papers on hyper-inflation in a Brazilian journal in 1990, in an edited book in 1991, in the Journal of Post Keynesian Economics in 1992, and in the Cambridge Journal of Economics in 1993.

4 Hamouda and Harcourt (1988) had themselves observed that all three strands of Post-Keynesian economics were concerned with how economic policies affect the level and distribution of national output and income.

5 As these authors show, investment becomes fully endogenous in the Sraffian super multipler; thus the impact of uncertainty on animal spirits plays no role in determining investment spending. The only way to restore a role for expectations and liquidity preference, in this case, is to re-introduce a distinction between short-run and long-run factors in economic growth — a distinction, as we have noted, that Carvalho saw as leading to internal analytical inconsistencies. See also Oreiro, Da Silva, and Santos (2020).

6 It should not be forgotten that Keynes’ General Theory sought to communicate with economists trained in Marshallian theory by adapting therein modelling conventions with which they were familiar.

7 The term ‘foundational’ is used here with apologies to Karel Williams and Julie Froud and their collaborators, who have proposed the term ‘foundational economy’ as a characterization of the social spaces of economic reproduction in urban settings (Foundational Economy Collective 2018).

8 Social provisioning involves explaining factors that include the structure and use of resources; the structure and change of social wants; and the structures of production reproduction and distribution (Lee 2009).

9 Watts’ (2003) notion of ‘small worlds’ — wherein agents are linked in networks of meaning that enable them to organize their responses to an otherwise overwhelming complexity of forces and events — complements the notion of ‘foundational’ developed here.