Real Economic Analysis (REA) is a systematic theoretical and empirical alternative to both Neoclassical and Post-Keynesian economics. The former rests on the notion of perfect competition, the latter on imperfect competition.

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REA is based on the notion of real competition, which is as different from perfect competition as war is from ballet. In real competition, price-setting firms seek to undercut their competitors by offering lower prices, which in turn drives all to cut costs, pursue lower wages, develop new technologies, and seek out regions with cheaper resources and lower wages.

 

REA provides a theoretical and empirical explanation of relative prices, stock and bond prices, interest rates and exchange rates.  It also provides a natural foundation for Keynes’ own theory of effective demand (which he insisted was based on competition) and for the empirical patterns of wages, unemployment, inflation, and the effects of various economic policies.

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