Methodological Aspects of PKE

Abstract

Economics in the PKE mode of thought is no longer solely the study of how scarce resources are allocated to infinite wants. Rather it is the study of how actual economic systems are able to expand their output over time by producing, distributing and using the resulting social surplus. The expansion path is uneven and likely to change the very nature of economic systems in unprecedented ways, so that economic processes are viewed as erratic, characterised by ‘circular and cumulative causation’ (Myrdal, 1957). Cumulative causation is a notion that operates at different levels. At the level of the firm it is seen as the result of opportunities to reinvest profits and of dynamic increasing returns (Kaldor, 1970). At the more aggregate level of regions, countries and groups of countries, the interplay of market forces is thought to increase rather than decrease inequalities (Myrdal, 1957). There is also the more ‘philosophical’ point that several dynamic processes always coexist in ‘history’ and change occurs when they reinforce each other in a Myrdal-type cumulative causation manner. PKE analysis is therefore concerned with an ‘economics without equilibrium’ (Kaldor, 1985), and is viewed as an integral part of the social sciences, concerned with people organised into groups to satisfy their needs. The behaviour of these groups in historical time — where the past is immutable and the future is uncertain and unknowable — is the focus of the analysis.