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Post-Keynesian ontology and epistemology is still an issue under debate. Three

different ―positions‖ can be distinguished. First, a large part of Post Keynesians do not touch upon the question of ontology and its corresponding methodology at all. Methods, primarily quantitative, are applied without questioning their ontological basis. A second position holds that a common ontological and methodological basis is a crucial unifying element of Post Keynesian economics (Arestis 1992; Lavoie 1992; Lawson 1994; Chick

187 1995; Arestis, Dunn et al. 1999; Dow 1999).¹²⁹ A final, though much smaller, strand argues that finding such a common methodological basis might indeed by

counterproductive for the Post Keynesian project as it would limit the approach in reach and breadth (Walters and Young 1999). Emphasis in this chapter shall be on the second strand, although concerns raised against assuming a common ontological and

methodological background will also be considered.

Given the widespread emphasis in Post Keynesian literature on uncertainty, historical processes and real choice it is argued that Post Keynesians share a common open system ontology (Dow 1998). Indeed, by overthrowing the ergodic axiom and emphasising the determining role of context specific expectations, Keynes‘ system rejects the assumption of the immutable nature of economic phenomena over time. In addition, Post Keynesians explicitly reject the assumption that knowledge of atomistic behaviour is sufficient to construct (macroeconomic) outcomes. Human agency is socially contingent, in an organic rather than atomist view of the economic process. At the same time, human agency reproduces and transforms social structures, which prevents full closure and the elaboration of a deterministic account of economic phenomena (Arestis, Dunn et al. 1999; Dow 2001).

Thus, unanimity seems to reign among Post Keynesians as to the open system ontology of their research program. There is less consensus over the specific form of this open system ontology and consequent epistemology and research strategy. Within Post Keynesian open system theorizing, three different approaches have been distinguished:

firstly, the Babylonian method by Dow (Dow 1990; Dow 1996; Dow 1998; Dow 2001), secondly critical realism, and finally the ―generalizing method most closely associated with Davidson‖ (Arestis, Dunn et al. 1999; Walters and Young 1999; Dow 2001; Lee 2002).¹³⁰ Given that the primary emphasis in the literature lies on the first two, this is where emphasis in this dissertation shall be placed. The question which arises here is, to what extent are these two approaches compatible for the formation of a common

129 Indeed, several authors, particularly Dow (1999) and Lawson (1994), argue that it is precisely this common ontological and epistemological basis which unites Post Keynesian thought in the presence of a wide disparity of theories and methods used.

130 It is important to note here that the borders between ontology, epistemology and methodology are difficult to draw. For example, although generally being an open system approach, critical realism makes additional ontological claims which might not be reflected in Dow‘s Babylonian method. As discussed below, this particularly refers to the emphasis on underlying mechanisms and deep structures.

188 methodological basis for Post Keynesian thought. It will be argued that a synergy of these two approaches is possible: while critical realism has more developed ontological foundations and implications for economic methodology, Dow‘s Babylonian method seems to offer more epistemological considerations.

Post Keynesian economics has been widely characterized as realist (Arestis 1992;

Lavoie 1992; Chick 1995). Dow (1999) argues that although not explicitly espousing critical realism, the content and the manner in which these authors present their methodological statements indicate a strong affinity with critical realism. Arestis (1996), McKenna and Zannoni (1999), Rotheim (1999), Lee (2002), Dunn (2004), and most prominently Lawson (1994), argue that Post Keynesian ontology is a critical realist one. According to Lawson (1994) this can be seen in Post Keynesians‘ enduring focus on uncertainty; an explicit view of economies as dynamic historical processes shaped by economic and political institutions; an acceptance of the reality of human choice understood as being able to always have acted otherwise; a prevalence of sets of competing substantive accounts of a given phenomenon etc. (Lawson 1999). Post Keynesians emphasis on the importance of institutional and political structures which shape human agency in particular, have been seen as a reflection of critical realists‘

conception of society as structured and intransitive and critical realists‘ emphasis on deeper structures and mechanisms (Lee 2002). In a similar vein, the Post Keynesian stipulation that economies must be seen as dynamic historical processes is reflected in the critical realist transformational conception of social activity (Lawson 1994).

Thus, following Rotheim (1999), this dissertation argues that insofar as Post Keynesians make it their analytical endeavour to uncover underlying mechanisms and processes, acknowledge the context, time specific, and transformative actuation of economic agents and aim to explain rather than predict, their research project can indeed be seen as a critical realist one. For example, with reference to the operations of economic agents under uncertainty, which were discussed in Chapter 3 of this dissertation, Rotheim argues that this is only the case if Post Keynesian economists do not seek refuge in two extremes: either the extreme form of fundamental uncertainty and ―animal spirits‖ which reduces individual behaviour to atomistic, subjective operations

independent of their social context or the construction of formalistic deductivist models based on the representative agent which relies on perfect certainty and full closure.

189 Importantly, Rotheim (1999) also argues that it is not in the critical realists‘ remit to describe what the exact underlying processes and mechanisms are. This is up to the individual science, for example Post Keynesian theory.¹³¹

The second type of open system ontology proposed for Post Keynesianism is Dow‘s Babylonian method. The Babylonian method asserts the existence of a complex, organically linked, transmutable reality, which makes it impossible to use one set of axioms as universally causal and makes it not amenable to formalization with respect to separable elements within a single system of reasoning (Dow 1996). Thus, Dow‘s Babylonian method also advocates open system ontology and the existence of

something ―real‖.¹³² However, in contrast to critical realism, it is not entirely clear what this reality consists of.¹³³ In some papers Dow argues that Babylonian thought assumes the existence of real processes and mechanisms which cause events (Dow 1998; Dow 1999). She thus seems to be accommodating critical realist ontology. In a similar vein, she argues that there is no tension between the irreducible complexity and openness associated with the Babylonian method and the elucidation of deep causal structures associated with critical realism, as these causal structures are not immutable, but open and indeterminate (Dow 1999). However, it is not clear whether she sees the

Babylonian method and critical realism as coinciding or merely consistent where the Babylonian method constitutes a more general umbrella accommodating critical realist ontology. In this sense, critical realism seems to be ontologically more precise and developed with consequent implications for methodology and the conduct of scientific research.

On the epistemological level, however, Dow‘s writings are very rich. Given the open, organic, complex and transmutable nature of reality, knowledge of this reality can

131The extent to which existing Post Keynesian work effectively adheres to a critical realist perspective is subject to debate (Downward 2000). For example, while Walters and Young (1999) argue that much of the work by Keynes, Kalecki and their followers could not be classified as critical realist, Arestis, Dunn et al. (1999) and Rotheim(1999), argue that indeed Keynes‘ focus on uncertainty, a money-wage economy, a monetary theory of production and the principle of effective demand as underlying mechanisms are indeed manifestations of a critical realist form of scientific endeavour.

132 Thus, as Dow (1999) argues the verdict that Babylonianism is constructivist is not correct.

133 However, Dow seems to argue that the quest for knowledge in Post Keynesian thought is structured by principles peculiar to Post Keynesianism (Dow 2001). These core and unifying principles are that the economic process is being ordered to a considerable degree because of institutions and conventional behaviour; that there are inevitable limits to knowledge; a focus on production rather than exchange; the importance of money; and finally a significant emphasis on investigating the nature, causes and

consequences of income distribution.

190 always only be partial. Knowledge is treated as being incomplete in a fundamental sense, fallible and transformable. Given that full knowledge is impossible to attain, a range of explicitly partial analyses is necessary to deal with that incompleteness.

Consequently, separate fields, theories and indeed methods are required to analyse the different facets of reality. Epistemologically, in this view, knowledge can be generated by decomposing the system and employing several strands of arguments which have different starting points and reinforce each other (Dow 1990; Dow 1996).

In sum, this section has shown that Post Keynesian economics is characterized by open system ontology. In addition, it has argued that critical realism and Dows‘ Babylonian method can complement each other in providing a common methodological basis for Post Keynesian economics. On the one hand, critical realism has more structured, independent ontological roots, and, as will be discussed in the next section, has been more fully developed in terms of its implications for economic methodology than the Babylonian approach (Dow 1999). Insofar as Post Keynesians put the emphasis in their analytical endeavour on identifying those mechanisms that explain the organic nature of a capitalist economy, where individuals are capable of purposeful intentional choices, Post Keynesian ontology and epistemology can indeed be considered critical realist (Rotheim 1999). One the other hand, Dow‘s writings on the fallibility of knowledge and its epistemological implications have important repercussions for the conduct of

scientific research from a Post Keynesian perspective. In addition, following Rotheim (1999), given that much of the critical realist literature is on the philosophical level, Post Keynesianism can contribute a body of substantive economic doctrine that

possesses powerful explanatory potential and provides economic theory for the assumed underlying mechanisms and processes.