ABSTRACT
Public policy is one key area where Post Keynesian economics differs from neoclassical economics. Neoclassical economists believe in the efficacy of markets. As a result, they tend to oppose government interference in market economies. On the other hand, from a Post Keynesian perspective, markets sometimes fail to lead to optimal results. In such instances, government actions are necessary to intervene in markets and thereby improve economic performance. The work of Nicholas Kaldor, who was concerned about the relation between theory, empirical work and public policy, helped shape the Post Keynesian approach to public policy. The theoretical work that Kaldor did with cumulative causation, and then his application of this work to specific public policy issues, shows the method and influence that Kaldor had on developing Post Keynesian public policy. In this chapter we first explain the basic principles and the history of cumulative causation, including Kaldor’s development and use of the notion of cumulative causation. We then show how Kaldor applied this theory to three areas and discuss the policy proposals that fall out of his analysis. These policy proposals, Kaldor believed, would deal with real world economic problems and would improve economic outcomes. We finally draw out some implications from Kaldor’s work that may be used for future Post Keynesian analysis and for developing Post Keynesian policy recommendations that deal with contemporary economic problems.
