土曜日, 6月 22, 2019

#17:259 Pat Devine Inflation and Marxist Theory”, Marxism Today, March, 1974

ケルトン  インフレ関連

#17:259 Modern monetary theory and inflation – Part 2 – Bill Mitchell – Modern Monetary Theory

Pat Devine
Inflation and Marxist Theory”, Marxism Today, March, 1974,
For a fuller discussion of the conflict theory of inflation, see P. Devine, “Inflation and Marxist Theory,” Marxism Today (March 1974): 70–92Google Scholar


Unemployment and Inflation


Ultimately, if the claimants of real income continue to try to pass on the raw material price rise to each other,

then it is likely that contractionary government policy will be introduced and unemployment will rise.

A better strategy would be to either change production processes in order to reduce the use of the expensive

imported resource, or to find a domestic alternative.

Conflict theory of inflation and inflationary biases

A series of articles in the journal Marxism Today in 1974 illustrated the proposition that inflation was the result

of a distributional conflict between workers and capital. These articles were written with reference to the early

1970s, when inflation rates rose in many Western economies.

One article by Pat Devine stated that the inflation process was a structural construct embedded in the intrin-

sic capital labour conflict. He argued that the increased bargaining power of workers (that accompanied the

long period of full employment in the post-Second World War period) and the declining productivity growth

in the early 1970s imparted a structural bias towards inflation which was manifested in the inflation breakout in

the mid-1970s that "ended the golden age."

He further claimed that the prolonged growth of money wages was "unprecedented in the history of capital-

ism" (Devine, 1974: 80). Capitalists increased prices to maintain profitability and thus countered the attempt to

raise real wages.

Large, oligopolistic firms with price setting power engaged in non-price competition (for example, product

quality). These firms, however, were interdependent because their market shares were sensitive to their pricing

strategies. When a firm was faced with nominal wage demands, its management knew that its rivals would face

similar pressure and that their competitive positions would not depend on the absolute price level while the

government continued to ensure that effective demand was sufficient to maintain full employment. On the other

hand, a firm could lose market share if it increased prices while other firms maintained lower prices. As a result,

firms had little incentive to resist the wage demands of their workers and strong incentives to protect their profits

by passing on the demands in the form of higher prices.

This structural depiction of inflation as being embedded in the class dynamics of capital and labour, both of

which had increased capacity to set prices and defend their real shares of income, implicates Keynesian-style

approaches to full employment.

There was also an international component to the structural theory. It was argued that the Bretton Woods sys-

tem (see Chapter 9) imparted deflationary forces on economies that were experiencing strong domestic demand

growth. As national income rose and imports increased, central banks were obliged to tighten monetary policy to

maintain the agreed exchange rate parity and the constraints on monetary growth acted to choke off incompat-

ible claims on the available income.

However, when the Bretton Woods system of convertible currencies and fixed exchange rates collapsed in

1971, the structural biases towards inflation came to the fore with floating exchange rates.

Devine (1974: 86) argued that:

floating exchange rates have been used as an additional weapon available to the state. Given domestic inflation

floating rates provide a degree of flexibility in dealing with the resultant pressure on the external payments

position. However, if a float is to be effective in stabilising a payments imbalance it is likely to involve lower real

incomes at home. If a reduction in real wages (or their rate of growth) is not acquiesced in there will then be

additional pressure for higher money wages and if this cannot be contained the rate of inflation and

there will be further depreciation.

The structuralist view also noted that the mid-1970s crisis, which marked the end of the Keynesian period, was

hot only marked by rising inflation but also by an ongoing profit squeeze due to declining productivity growth

and increasing external competition for market share. The profit squeeze led to firms reducing their rate of invest-

hent (which reduced aggregate demand growth), which combined with harsh contractions in monetary and

fiscal policy, created the stagflation that bedevilled the world in the second half of the 1970s.

1974年のジャーナルMarxism Todayの一連の記事は、インフレが結果であったという命題を例証しました
Pat Devineによる1つの記事では、膨張プロセスは内臓に埋め込まれた構造的構築物であると述べられています。
構造理論には国際的な要素もありました。 Bretton Woodsシステムは、



Conflict theory of inflation

There was a series of articles in Marxism Today in 1974 which advanced the notion of inflation being the result of a distributional conflict between workers and capital. One such article by Pat Devine (1974) ‘Inflation and Marxist Theory’, Marxism Today, March, 70–92 is worth reading if you can find it. As an aside, you can view an limited archive of Marxism Today since 1977 which is a very valuable resource.

Another influential book at the time was Robert Rowthorn’s 1980 book – Capitalism, Conflict and Inflation (Lawrence and Wishart).

The conflict theory derives directly from cost-push theories referred to above. Conflict theory recognises that the money supply is endogenous (as opposed to the Monetarist’s Quantity Theory of Money which assumes, wrongly, that the money supply is fixed).

In this world, firms and unions have some degree of market power (that is, they can influences prices and wage outcomes) without much correspondence to the state of the economy. They both desire some targetted real output share.

In each period, the economy produces a given real output which is shared between the groups with distributional claims. If the desired real shares of the workers and bosses is consistent with the available real output produced then there is no incompatibility and there will be no inflationary pressures.

But when the sum of the distributional claims (expressed in nominal terms – money wage demands and mark-ups) are greater than the real output available then inflation can occurs via the wage-price or price-wage spiral noted above.

The wage-price spiral might also become a wage-wage-price spiral as one section of the workforce seeks to restore relativities after another group of workers succeed in their wage demands.

That is, the conflict over available real output promotes inflation. Various dimensions can then be studied – the extent to which different wage contracts overlap and are adjusted, the rate of growth of productivity (which provides “room” for the wage demands to be accomodated without squeezing the profit margin), the state of capacity utilisation (which disciplines the capacity of the firms to pass on increasing costs), the rate of unemployment (which disciplines the capacity of workers to push for nominal wages growth).


1974年の今日のマルクス主義論には、労働者と資本の間の分配上の対立の結果であるインフレの概念を発展させた一連の記事がありました。 Pat Devine(1974)によるそのような記事の1つ、 『インフレとマルクス主義論』、Marxism Today、70  -  92年は、それを見つけることができれば読む価値があります。余談ですが、1977年以来のMarxism Todayの限られたアーカイブは非常に貴重な資料です。

当時のもう1つの有力な本は、ロバート・ローソーンの1980年の本 - 資本主義、紛争とインフレーション(ローレンスとウィシャート)です。




しかし、分配請求の合計(名目で表すと - マネー賃金需要と値上げ)が利用可能な実際のアウトプットよりも大きいとき、インフレーションは上記の賃金 - 価格または価格 - 賃金のスパイラルを通して起こります。


すなわち、利用可能な実質生産高をめぐる対立はインフレを促進する。次に、さまざまな次元を検討することができます。つまり、さまざまな賃金契約が重複して調整される範囲、生産性の成長率(利益率を圧迫することなく対応できる賃金需要に「余地」を提供する) (これは企業が増加するコストを引き継ぐ能力を規律している)、失業率(名目賃金の伸びを推進する労働者の能力を規律している)。

Modern monetary theory and inflation – Part 2

The UN Food and Agriculture Organisation (FAO) released their monthly index of food prices yesterday (January 5, 2011) which showed that the index reached a record high in December 2010 “surpassing the levels of 2008 when the cost of food sparked riots around the world, and prompting warnings of prices being in “danger territory”” (Source). There are several reasons why food prices will move even higher – the catastrophic floods in Northern Queensland being among them. The rising food prices are once again leading to calls for interest rates to rise in order to minimise the inflationary consequences. That motivated me to write Part 2 of my series on inflation – in this case supply-side motivated inflations. In Part 1 of the series – Modern monetary theory and inflation – Part 1 – I concentrated on demand-side origins.

In their recently released 2010 Report – The State of Food Insecurity in the World – the FAO estimated that:

After increasing from 2006 to 2009 due to high food prices and the global economic crisis, both the number and proportion of hungry people have declined in 2010 as the global economy recovers and food prices remain below their peak levels. But hunger remains higher than before the crises …

The following graph shows the FAO Food Price Index up to December 2010 (from January 1990).

Why is that graph important? Because the rising food prices will reverse the recent trends which saw a modest decline in the number of undernourished people in the world in the last year as a result of falling prices since 2008 (due mostly to the recession). All the analysis in the FAO report – which is mildly positive in terms of trends – is predicated on the drop in food prices that accompanied the recession and some good harvests in developing nations. I expect that positive slant will not be realised in practice and that hunger will rise in the coming year.

Further, in the detailed report you will find nothing to support the view that people are poor because governments have run budget deficits. In fact, the opposite would be suggested given the importance of providing quality education, health care and public infrastructure.

One set of facts which should always be borne in mind when considering whether current neo-liberal policy approaches are working is that in developed countries there were 13 per cent of the total population undernourished (2005-07) whereas in developing countries this proportion was 16 per cent. In other words, the “wealthy” world is not all that much better at feeding its poor.

Anyway, back to the main theme.

In the UK Guardian article (January 5, 2011) – Inflation threat divides economists – we read that so-called experts are “split on question of whether surge in oil and food prices will result in higher inflation and interest rates”.

The optimists (those who do not think there will be an inflationary threat) point to the possible ephemeral nature of the rising food prices and the recent “pick-up in oil prices”.

The consumer price indexes that central banks tend to use trim out ephemeral price rises to bring out underlying price movements.

I am less optimistic given the energy demand from the growing Indian and Chinese economies. I last conjectured on that issue in this blog – Be careful what we wish for ….

The head of the UK National Institute for Economic and Social Research told the Guardian that rising energy demand from Asia could “trigger a sustained rise in inflation that would need to be quelled by higher interest rates”. They also quoted one of UK’s extreme monetarists (still pushing that line) who considered the low interest rates in the UK in response to the crisis to be a “dangerous nonchalance”. He is just rehearsing his recurring theme and the informational content of that theme is low.

The Guardian article then presented the opposite case which I found interesting:

Some economists argue we must forget about raising interest rates and live with higher inflation imported from China and the east. If UK inflation were the result of excess demand in the UK then higher base rates could usefully dampen consumption and moderate inflation. If inflationary prices are driven by excess demand in the east or shortages in Australian wheat – factors beyond the control of UK policymakers – then why choke off our nascent economic revival with higher rates, they say.

So the tension in the policy debate is whether to deal with a supply-side price surge (if it turns out to be significant) via demand-side policies (tightening interest rates and fiscal austerity). Fiscal austerity in this context is considered essential by those who believe in the primacy of monetary policy for discipling the inflation process rather than in the current sense that public debt levels are too high.

The reference to Australian floods is also not insignificant. The following pictures shows two NASA satellite images of the area in Northern Queensland around Rockhampton where the floods are very bad at present. The top image was taken on January 4, 2011 while the bottom (of the same area) was taken on December 14, 2010. They allow you to gauge how bad the situation is – this is a very big land area.

You can see more images and analysis HERE.

While the human and social elements of the floods will be very significant, economists have focused on their impact on real GDP growth and inflation – and given the current neo-liberal mindset – monetary policy.

Economists have predicted that the floods in Queensland that are now – courtesy of south-flowing rivers heading to my state (NSW). The Sydney Morning Herald article – Economists warn of dire short-term repercussions (January 6, 2011) said the floods are:

… expected to ravage the Australian economy this year by hitting growth and driving up inflation … coal exports worth $100 million a day were being lost or postponed due to the floods … [economists] … expected the crisis to wipe about 0.3 per cent off gross domestic product immediately … prices were expected to rise because of the effect on agriculture … [there would be a] … 0.75 per cent rise in inflation …

The growth impact should only be temporary because the public spending involved in the rebuilding (supplemented by the insurance payouts if the insurance companies play if fairly and unlike other crises try to short-change their policy holders with all sorts of loopholes and technicalities) will stimulate demand and hence economic activity.

The disruption to coal mining (many mines are flooded or closed because of drainage issues) will also impact on world coal prices given that “Queensland supplies almost a quarter of the world’s seaborne coal exports, and about half of all exports of coking coal”.

So the public discussion about the floods among economists has now turned to its “inflationary” impact. Energy prices are already rising and food prices will definitely rise over the next few months given that the flooded area is a very significant supplier of many vegetable lines (especially in Winter as the southern farms move to cooler crops).

The most asinine comment I heard yesterday was from our Prime Minister who said that while the Federal Government was going to provide as much fiscal support to the flood-affected communities and businesses they would have to make “savings” elsewhere to make sure they kept true to their pledge to get the budget back into surplus next year.

She clearly hasn’t been briefed by her advisers that if the expected loss of real output (growth declines) then the budget will be heading in the opposite direction courtesy of the automatic stabilisers (falling tax revenue, increased welfare outlays) and she won’t have a hope in hell of getting the budget into surplus.

The deeper question is why should they target a surplus at this point in the business cycle anyway given that we have at least 12.5 per cent of our willing labour resources remaining idle (unemployed or underemployed) and even a higher number outside the labour force who want to work. That is another question which I will address in another blog another day.

Economists were being wheeled out by the media in the last 24 hours and many were arguing that interest rates would have to rise to combat the inflationary impact.

So they were advocating a supply-side event which generates costs pressures being dealt with through a demand-side measure (which intends to squeeze purchasing power and reduce aggregate demand).

Supply-side inflation

In this blog – Modern monetary theory and inflation – Part 1 – I outlined what the demand-side theory of inflation.

Economists distinguish between cost-push and demand-pull inflation although the demarcation between the two “states” is not as clear as one might think. This is a good site for background material.

Demand-pull inflation refers to the situation where prices start accelerating continuously because nominal aggregate demand growth outstrip the capacity of the economy to respond by expanding real output. Remember Gross Domestic Product (GDP) is the market value of final goods and services produced in some period.

So GDP = P.Y where P is the aggregate price level and Y is real output. Aggregate demand (expenditure) is always equal (by national accounting) to GDP or P.Y. So if there is growth in demand that cannot be met by growth in Y then P has to rise.

Keynes outlined the notion of an inflationary gap in his famous article – J.M. Keynes (1940) How to Pay for the War: A radical plan for the Chancellor of the Exchequer. London: Macmillan.

While this was in the context of war-time spending when faced by tight supply constraints (that is, an restricted ability to expand real output), the concept of the inflationary gap has been generalised to describe situations of excess demand (which I outlined above).

When there is excess capacity (supply potential) rising nominal aggregate demand growth will typically impact on real output growth first as firms fight for market share and access idle labour resources and unused capacity without facing rising input costs. As the economy nears full capacity the mix between real output growth and price rises becomes more likely to be biased toward price rises (depending on bottlenecks in specific areas of productive activity). At full capacity, GDP can only grow via inflation (that is, nominal values increase only).

Cost-push inflation (sometimes called “sellers inflation”) has a long tradition in the progressive literature (Marx, Kalecki, Lerner, Kaldor, Weintraub) although it is not exclusively a progressive theory. Milton Friedman considered that wage demands from trade unions were a major threat to inflation although he ultimately considered central bank monetary policy to be the real problem in that they accommodated these wage demands by increasing the “money supply”.

Cost-push inflation is an easy concept to understand and is generally explained in the context of “product markets” (where goods a sold) where firms have price setting power. That is, the perfectly competitive model that pervades the mainstream economics textbooks where firms have no market power and take the price set in the market, is abandoned and instead firms set prices by applying some form of profit mark-up to costs.

Kalecki is notable in that he started his analysis assuming mark-up pricing as an attempt to develop economic theory that was based on how the real world actually operated.

The notion is pretty straightforward although there are many different versions. But generally, firms are considered to have target profit rates which they render operational by the mark-up on unit costs. Unit costs are driven largely by wage costs, productivity movements and raw material prices.

Trade union bargaining power was considered an important component of the capacity of workers to realise nominal wage gains and this power was considered to be pro-cyclical – that is, when the economy is operating at “high pressure” (high levels of capacity utilisation) workers are more able to succeed in gaining money wage gains.

In these models, unemployment is seen as disciplining the capacity of workers to gain wages growth – in line with Marx’s reserve army of unemployed idea.

Workers have various motivations depending on the theory but most accept that real wages growth (increasing the capacity of the nominal or money wage to command real goods and services) is a primary aim of most wage bargaining.

So we get a “battle of the mark-ups” operating – workers try to get more real output for themselves by pushing for higher money wages and firms then resist the squeeze on their profits by passing on the rising cost – that is, increasing prices with the mark-up constant.

At that point there is no inflation – just a once-off rise in prices and no change to the distribution of national income in real terms.

However, if the economy is working at high pressure, workers may resist the attempt by capital to keep their real wage constant (or falling) and hence they may respond to the increasing prices by making further nominal wage demands. If their bargaining power is strong (which from the firm’s perspective is usually in terms of how much damage the workers can inflict via industrial action on output and hence profits) then they are likely to be successful.

At that point there is still no inflation. But if firms are not willing to absorb the squeeze on their real output claims then they will raise prices again and the beginnings of a wage-price spiral begins. If this process continues then you have a cost-push inflation.

The causality may come from firms pushing for a higher mark-up and trying to squeeze workers’ real wages. In this case, we might refer to the unfolding inflationary process as a price-wage spiral.

Conflict theory of inflation

There was a series of articles in Marxism Today in 1974 which advanced the notion of inflation being the result of a distributional conflict between workers and capital. One such article by Pat Devine (1974) ‘Inflation and Marxist Theory’, Marxism Today, March, 70–92 is worth reading if you can find it. As an aside, you can view an limited archive of Marxism Today since 1977 which is a very valuable resource.

Another influential book at the time was Robert Rowthorn’s 1980 book – Capitalism, Conflict and Inflation (Lawrence and Wishart).

The conflict theory derives directly from cost-push theories referred to above. Conflict theory recognises that the money supply is endogenous (as opposed to the Monetarist’s Quantity Theory of Money which assumes, wrongly, that the money supply is fixed).

In this world, firms and unions have some degree of market power (that is, they can influences prices and wage outcomes) without much correspondence to the state of the economy. They both desire some targetted real output share.

In each period, the economy produces a given real output which is shared between the groups with distributional claims. If the desired real shares of the workers and bosses is consistent with the available real output produced then there is no incompatibility and there will be no inflationary pressures.

But when the sum of the distributional claims (expressed in nominal terms – money wage demands and mark-ups) are greater than the real output available then inflation can occurs via the wage-price or price-wage spiral noted above.

The wage-price spiral might also become a wage-wage-price spiral as one section of the workforce seeks to restore relativities after another group of workers succeed in their wage demands.

That is, the conflict over available real output promotes inflation. Various dimensions can then be studied – the extent to which different wage contracts overlap and are adjusted, the rate of growth of productivity (which provides “room” for the wage demands to be accomodated without squeezing the profit margin), the state of capacity utilisation (which disciplines the capacity of the firms to pass on increasing costs), the rate of unemployment (which disciplines the capacity of workers to push for nominal wages growth).

Now here is the complication. Conflict theories of inflation note that for this distributional conflict to become a full-blown inflation the central bank has to ultimately “accommodate” the conflict. What does that mean?

If the central bank pushes up interest rates and makes credit more expensive, firms will be less able to pay the higher money wages (the conceptualisation is that firms access credit to “finance” their working capital needs in advance of realisation via sales). Production becomes more difficult and workers (in weaker bargaining positions) are laid off.

The rising unemployment, in turn, eventually discourages the workers from pursuing their on-going demand for wage increases and ultimately the inflationary process is choked off.

However, if the central bank doesn’t tighten monetary policy and the fiscal authorities do not increase taxes or cut public spending then the incompatible distributional claims will play out and inflation becomes inevitable.

Note I have not considered in any detail in this blog – the open economy interpretations of the conflict theory of inflation which have been developed by several Latin American researchers. That will be in Part 3 in this series which I will write another day.

There are also strong alignments between the conflict theory of inflation and Minksy’s financial instability notion. Both consider the dynamics are variable across the business cycle and so when economic activity is weak, both the distributional claims and the attitude of banks to lending will be benign. As the economic growth gathers pace, the claims increase and the risk-averseness of banks declines and more risky loans are made.

Pat Devine’s article (noted above) also introduced the notion that inflation was a structural construct. He argued that the increased bargaining power of workers (that accompanied the long period of full employment in the Post Second World War period) and the declining productivity in the early 1970s imparted a structural bias towards inflation which manifested in the inflation breakout in the mid-1970s which he says “ended the golden age”.

This notion implicates Keynesian-style approaches to full employment – and says the conduct of fiscal policy which squarely aimed to maintain full employment and high growth rates provided the structure for the biases to emerge. Then with the collapse of the Bretton Woods system of convertible currencies and fixed exchange rates (which provided deflationary forces to economies that had strongly domestic demand growth) these structural biases came to the fore.

Rowthorn says that the mid-1970s crisis – which marked the end of the Keynesian period and the start of the neo-liberal period – was associated with a rising inflation but also an on-going profit squeeze due to declining productivity and increasing external competition for market share. The profit squeeze led to firms reducing their rate of investment (which reduced aggregate demand growth) which combined with harsh contractions in monetary and fiscal policy created the stagflation that bedeviled the world in the second half of the 1970s.

The resolution to the “structural bias” was the policy-motivated attack on the working class bargaining power – both in the form of the persistently high unemployment and specific labour relations legislation. The subsequent redistribution of real income towards profits reduced the inflation spiral as workers were unable to pursue real wages growth and productivity growth outstripped real wages growth.

In one of my early articles (1987) – in the Australian Economic Papers – The NAIRU, Structural Imbalance and the Macroequilibrium Unemployment Rate – I developed the notion of a macroequilibrium unemployment rate. This came from my PhD research on inflation and natural rates. It was the first Australian study of hysteresis and one of the first international studies. 

The motivation was clearly that the policy orientation in the UK, the US and in Australia was and remains based on the view that inflation is the basic constraint on expansion (and fuller employment).

The popular belief is that fiscal and monetary policy can no longer attain unemployment rates common in the sixties without ever-accelerating inflation rate of unemployment. The natural rate of unemployment (NRU) which is the rate of unemployment consistent with stable inflation is considered to have risen over time.

The non-accelerating inflation rate of unemployment (NAIRU) is a less rigorous version of the NRU but concurs that a particular, cyclically stable unemployment rate coincides with stable inflation. Labour force compositional changes, government welfare payments, trade-union wage goals among other “structural” influences were all implicated in the rising estimates of the inflationary constraint. 

The NAIRU achieved such rapid status among the profession as a policy-conditioning concept that I thought it warranted close scrutiny.

My basic proposition was that persistently weak aggregate demand creates a labour market, which mimics features conventionally associated with structural problems.

The specific hypothesis I examined was whether the equilibrium unemployment rate is a direct function of the actual unemployment rate and hence the business cycle. That is the hysteresis effect.

By developing an understanding of the way the labour market adjusts to swings in aggregate demand and generates hysteresis, providing a strong conceptual and empirical basis for advocating counter-stabilising fiscal policy (aggregate policy expansion in a downturn).

So while it might look like the degree of slack necessary to control inflation may have increased, the underlying cyclical labour market processes that are at work in a downturn can be exploited by appropriate demand policies to reduce the steady state unemployment rate.

In that work I outlined a conceptual unemployment rate, which is associated with price stability, in that it temporarily constrains the wage demands of the employed and balances the competing distributional claims on output.

I introduced a new term the macroequilibrium unemployment rate (the MRU) which I noted was, importantly, sensitive to the cycle due to the impact of the cyclical labour market adjustments on the ability of the employed to achieve their wage demands. In this sense, the MRU is distinguished from the conventional steady state unemployment rate, the NAIRU, which is not conceived to be cyclically variable.

What I wanted to show was that there was an interaction between the actual and MRU which would establish the presence of the hysteresis effect.

To be clear – the significance of hysteresis, if it exists, is that the unemployment rate associated with stable prices, at any point in time should not be conceived of as a rigid non-inflationary constraint on expansionary macro policy.

The equilibrium rate itself can be reduced by policies, which reduce the actual unemployment rate. That is why I chose to use the term MRU, as the non-inflationary unemployment rate, as distinct from the NAIRU, to highlight the hysteresis mechanism.

The idea is that structural imbalance increases in a recession due to the cyclical labour market adjustments commonly observed in downturns, and decreases at higher levels of demand as the adjustments are reserved. Structural imbalance refers to the inability of the actual unemployed to present themselves as an effective excess supply.

The non-wage labour market adjustment that accompany a low-pressure economy, which could lead to hysteresis, are well documented. Training opportunities are provided with entry-level jobs and so the (average) skill of the labour force declines as vacancies fall. New entrants are denied relevant skills (and socialisation associated with stable work patterns) and redundant workers face skill obsolescence. Both groups need jobs in order to update and/or acquire relevant skills. Skill (experience) upgrading also occurs through mobility, which is restricted during a downturn.

So why would there be some unemployment rate that is consistent with stable inflation. Remember this is a non Job Guarantee world. The introduction of a JG would change things considerably (more favourably).

There is an extensive literature that links the concept of structural imbalance to wage and price inflation. A non-inflationary unemployment rate can be defined which is sensitive to the cycle.

My work at the time was contributing to the view that inflation was the product of incompatible distributional claims on available income. So when nominal aggregate demand is growing too quickly, something has to give in real terms for that spending growth to be compatible with the real capacity of the economy to absorb the spending.

Unemployment can temporarily balance the conflicting demands of labour and capital by disciplining the aspirations of labour so that they are compatible with the profitability requirements of capital. That was Kalecki’s argument which I considered in the blog – Michal Kalecki – The Political Aspects of Full Employment.

A lull in the wage-price spiral could thus be termed a macroequilibrium state in the limited sense that inflation is stable. The implied unemployment rate under this concept of inflation is termed in this paper the MRU and has no connotations of voluntary maximising individual behaviour which underpins the NAIRU concept that is at the core of mainstream macroeconomics.

Wage demands are thus inversely related to the actual number of unemployed who are potential substitutes for those currently employed. 

Increasing structural imbalance (via cyclical non-wage labour market adjustment) drives a wedge between potential and actual excess labour supply, and to some degree, insulates the wage demands of the employed from the cycle. The more rapid the cyclical adjustment, the higher is the unemployment rate associated with price stability. 

Stimulating job growth can decrease the wedge because the unemployed develop new and relevant skills and experience. These upgrading effects provide an opportunity for real growth to occur as the cycle reduces the MRU. 

Why will firms employ those without skills? An important reason is that hiring standards drop as the upturn begins. Rather than disturb wage structures firms offer entry-level jobs as training positions.

It is difficult to associate wage demands (in excess of current money wages) with the workforce. While the increased training opportunities increase the threat to those who were insulated in the recession this is offset to some degree by the reduced probability of becoming unemployed.

The subsequent empirical work I did and which has since been built on by others has blown the NAIRU concept out of the water. Please read my blog – The dreaded NAIRU is still about! – for more discussion on this point.

At the time, and since, a lot of progressives have objected to the idea that there is some steady-state unemployment rate that disciplines inflation. They claim is sounds like a NAIRU and is a concession to the mainstream paradigm.

Rowthorn clearly understood that at some level of unemployment – which emerges when the government tightens its policy settings – inflation stabilises. This sounds like a NAIRU.

In my 1987 article I wrote:

Inflation results from incompatible distributional claims on available income, unemployment can temporarily balance the conflicting demands of labour and capital by disciplining the aspirations of labour so that they are compatible with the profitability requirements of capital … The wage-price spiral lull could be termed a macroequilibrium state in the limited sense that inflation is stable. The implied unemployment rate under this concept of inflation is termed in this paper the MRU and has no connotations of voluntary maximising individual behaviour which underpins the NAIRU concept …

That is a crucial distinction – it is no surprise in a capitalist system that if you create enough unemployment you will suppress wage demands given that workers, by definition, have to work to live.

But you can underpin this notion of equilibrium without recourse to the individualistic and optimising behaviour assumed by the mainstream.

Raw material price rises

Raw material shocks can also trigger of a cost-push inflation. They can be imported or domestically-sourced. I will devote a special blog to imported raw material shocks in the future.

But the essence is that an imported resource price shock amounts to a loss of real income for the nation in question. This can have significant distributional implications (as the OPEC oil price shocks in the 1970s had). How the government handles such a shock is critical.

The dynamic is that the imported resources reduces the real income that is available for distribution domestically. Something has to give. The loss has to be shared or borne by one of the claimants or another. If the workers resist the lower real wages or if bosses do not accept that some squeeze on their profit margin is inevitable then a wage-price/price-wage spiral can emerge.

The government can employ a number of strategies when faced with this dynamic. It can maintain the existing nominal demand growth which would be very likely to reinforce the spiral.

Alternatively, it can use a combination of strategies to discipline the inflation process including the tightening of fiscal and monetary policy to create unemployment (the NAIRU strategy); the development of consensual incomes policies and/or the imposition of wage-price guidelines (without consensus).

Progressives argued that the best way to deal with such the likelihood is via an incomes policy saying that the NAIRU strategy is very costly in terms of real output losses.

They consider incomes policies can be developed with mediate the claims on the real income available to render them compatible over time. I will write a separate blog about incomes policies as I did a lot of work on them in the late 1980s and into the 1990s.

I also wrote some papers in the 1980s on having wage-price rules driven by productivity growth in certain sectors (for example, in the so-called Scandinavian Model (SM) of inflation.

This model, originally developed for fixed exchange rates, dichotomises the economy into a competitive sector (C-sector) and a sheltered sector (S-sector). The C-sector produces products, which are traded on world markets, and its prices follow the general movements in world prices. The C-sector serves as the leader in wage settlements. The S-sector does not trade its goods externally.

Under fixed exchange rates, the C-sector maintains price competitiveness if the growth in money wages in its sector is equal to the rate of change in its labour productivity (assumed to be superior to S-sector productivity) plus the growth in prices of foreign goods. Price inflation in the C-sector is equal to the foreign inflation rate if the above rule is applied. The wage norm established in the C-sector spills over into wages growth throughout the economy.

The S-sector inflation rate thus equals the wage norm less its own productivity growth rate. Hence, aggregate price inflation is equal to the world inflation rate plus the difference between the productivity growth rates in the C- and S-sectors weighted by the S-sector share in total output. The domestic inflation rate can be higher than the rate of growth in foreign prices without damaging competitiveness, as long as the rate of C-sector inflation is less than or equal to the world inflation rate.

In equilibrium, nominal labour costs in the C-sector will grow at a rate equal to the room (the sum of the growth in world prices and the C-sector productivity). Where non-wage costs are positive (taxes, social security and other benefits extracted from the employers), nominal wages would have to grow at a lower rate. The long-run tendency is for nominal wages to absorb the room provided. However in the short-run, labour costs can diverge from the permitted growth path. This disequilibrium must emanate from domestic factors.

The main features of the SM can be summarised as follows:

  • The domestic currency price of C-sector output is exogenously determined by world market prices and the exchange rate.
  • The surplus available for distribution between profits and wages in the C-sector is thus determined by the world inflation rate, the exchange rate and the productivity performance of industries in the C-sector.
  • The wage outcome in the C-sector is spread to the S-sector industries either by design (solidarity) or through competition.
  • The price of output in the S-sector is determined (usually by a mark-up) by the unit labour costs in that sector. The wage outcome in the C-sector and the productivity performance in the S-sector determine unit labour costs.

An incomes policy would establish wage guidelines which would set national wages growth according to trends in world prices (adjusted for exchange rate changes) and productivity in the C-sector. This would help to maintain a stable level of profits in the C-sector.

Whether this was an equilibrium level depends on the distribution of factor shares prevailing at the time the guidelines were first applied. 

Clearly, the outcomes could be different from those suggested by the model if a short-run adjustment in factor shares was required. Once a normal share of profits was achieved the guidelines could be enforced to maintain this distribution.

A major criticism of the SM as a general theory of inflation is that it ignores the demand side. Uncoordinated collective bargaining and/or significant growth in non-wage components of labour costs may push costs above the permitted path. Where domestic pressures create divergences from the equilibrium path of nominal wage and costs there is some rationale for pursuing a consensus based incomes policy.

An incomes policy, by minimising domestic cost fluctuations faced by the exposed sector, could reduce the possibility of a C-sector profit squeeze, help maintain C-sector competitiveness, and avoid employment losses. Significant contributions to the general cost level and hence prices can originate from the actions by government. Payroll taxation, various government charges and the like may in fact be more detrimental to the exposed sector than increased wage demands from the labour market.

Although the SM was originally developed for fixed exchange rates, it can accommodate flexible exchange rates. Exchange rate movements can compensate for world price changes and local price rises. The domestic price level can be completely insulated from the world inflation rate if the exchange rate continuously appreciates (at a rate equal to the sum of the world inflation rate and C-sector productivity growth). 

Similarly, if local price rises occur, a stable domestic inflation rate can still be maintained if a corresponding decrease in C-sector prices occur. An appreciating exchange rate discounts the foreign price in domestic currency terms.

What about terms of trade changes? Terms of trade changes, which in the SM justify wage rises, also (in practice) stimulate sympathetic exchange rate changes. This combination locks the economy into an uncompetitive bind because of the relative fixity of nominal wages. Unless the exchange rate depreciates far enough to offset both the price fall and the wage rise, profitability in the C-sector will be squeezed.

It was considered appropriate to ameliorate this problem through an incomes policy. Such a policy could be designed to prevent the destabilising wage movements, which respond to terms of trade improvements. In other words, wage bargaining, consistent with the mechanisms defined by the SM may be detrimental to both the domestic inflation target and the competitiveness of the C-sector, and may need to be supplemented by a formal incomes policy to restore or retain consistency.

I remind all progressives of what Rowthorn (a Marxist economist) noted:

…trade unions cannot afford to be too successful …

Which means in a capitalist system which is driven by the rate of profit, workers can create unemployment by being tpo successful in their wage demands.

Modern Monetary Theory policy considerations

As I explained in Part 1 of this series – Modern monetary theory and inflation – Part 1 – a cost-push inflation requires certain aggregate demand conditions to continue for its fuel. In this regard, the concept of a supply-side inflation blurs with the demand-pull inflation although their originating forces might be quite different.

An imported raw material shock just means that real income is lower and will not cause inflation unless it triggers an on-going distributional conflict. That conflict needs “oxygen” in the form of on-going economic activity in sectors where the spiral is robust.

The preferred approach is to use employment buffer stocks in conjunction with fiscal policy adjustments to allow the available real income to be rendered compatible with the existing claims.

Modern Monetary Theory rejects the NAIRU approach (the current orthodoxy) – that is, the use of unemployment buffer stocks – where inflation is controlled using tight monetary and fiscal policy, which leads to a buffer stock of unemployment. This is a very costly and unreliable target for policy makers to pursue as a means for inflation proofing.

Employment buffer stocks rests on the government exploiting its fiscal power that is embodied in a fiat-currency issuing national government to introduce full employment based on an employment buffer stock approach. The Job Guarantee (JG) model which is central to MMT is an example of an employment buffer stock policy approach.

Under a Job Guarantee, the inflation anchor is provided in the form of a fixed wage (price) employment guarantee.

Full employment requires that there are enough jobs created in the economy to absorb the available labour supply. Focusing on some politically acceptable (though perhaps high) unemployment rate is incompatible with sustained full employment.

In MMT, a superior use of the labour slack necessary to generate price stability is to implement an employment program for the otherwise unemployed as an activity floor in the real sector, which both anchors the general price level to the price of employed labour of this (currently unemployed) buffer and can produce useful output with positive supply side effects.

The employment buffer stock approach (the JG) exploits the imperfect competition introduced by fiat (flexible exchange rate) currency which provides the issuing government with pricing power and frees it of nominal financial constraints.

The JG approach represents a break in paradigm from both traditional Keynesian policies and the NAIRU-buffer stock approach. The difference is a shift from what can be categorised as spending on a quantity rule to spending on a price rule.

I noted interest in this concept today among the comments and I will write more about it in due course. But the point is that under a spending rule (which is the current policy approach), the government budgets a quantity of dollars to be spent at prevailing market prices. 

In contrast, under a price rule (the JG option) the government offers a fixed wage to anyone willing and able to work, and thereby lets market forces determine the total quantity of government spending. This is what I call spending based on a price rule.

How does the government decide that net public spending is just right? Answer: the JG is an automatic stabiliser. The last worker that comes into the JG office to accept a wage tells you the limits of the program and the size of the budget commitment.

This becomes more complicated when there are other programs being offered. But given the automatic stabiliser nature of the JG, the government at least knows exactly how much it has to outlay each period to maintain (loose) full employment. What is does in addition to this depends on its policy ambitions and the degree of excess capacity in the non-JG sectors of the economy.

Many economists who are sympathetic to the goals of full employment are sceptical of the JG approach because they fear it will make inflation impossible to control. 

However, if the government is buying a resource with zero market bid (the JG workers) and moving resources from the inflating sectors to the fixed price sector then inflation control is possible – no matter the origin.

Some people have argued that the JG could be offered in conjunction with an incomes policy if the implied JG-pool that is required to resolve the inflation spiral is too large.

This is entirely possible if you can devise an effective incomes policy. It is unnecessary for inflation control once the JG is in place but could reduce the size of the shift in resources between the private economy and the JG pool should that be considered problematic.


My main concern about the rising prices at present that are of supply-side origin relate to the FAO issues raised at the outset. The number (and proportion) of people in hunger will rise and that should be a government policy priority.

It certainly will not be a priority as long as governments continue headlong into fiscal austerity.

Further, under current policy approaches based on the NAIRU, if the central banks use demand-side policies to deal with a supply-side motivated problem the costs will be very high. The only way that demand-side policies should be used to effect when there is a supply-side motivated inflation is when there is an employment buffer stock system in place.

Total aside – be careful when builders are around

We are currently getting some work done on our house to make it more functional. So walls are getting torn down and all that sort of thing. When I get home at night I am interested in seeing the progress and so far so good.

Not so for one person in Pittsburgh – see story.

So next time there are builders in your street make sure your house is either scheduled for work or someone else’s is!

That is (more) than enough for today!


現代の貨幣理論とインフレ - パート2

bill 2011年1月6日、木曜日

国連食糧農業機関(FAO)は昨日(2011年1月5日)毎月の食料価格指数を発表しました。これは2010年12月に指数が過去最高を記録したことを示しています。そして、物価が「危険地域」にあるという警告を促している(出典)。食料価格がさらに高騰するのにはいくつかの理由があります - クイーンズランド州北部の壊滅的な洪水がその中にあります。食料価格の高騰は再びインフレの影響を最小限に抑えるために金利の引き上げを要求しています。それが私のインフレに関するシリーズの第2回を書く動機となりました - この場合は供給サイドの動機付けインフレです。シリーズの第1部 - 現代の貨幣理論とインフレーション - 第1部 - 私は需要側の起源に集中しました。

最近発表された2010年の報告書 - 世界の食料不安の状況 - において、FAOは次のように推定しています。



そのグラフはなぜ重要なのですか。食料価格の上昇は、2008年以降の物価下落の結果として、昨年の世界の栄養不足人口の穏やかな減少を見せた最近の傾向を覆すであろうから(大部分は不況による)。 FAOレポートの分析はすべて、トレンドに関してはやや肯定的ですが、景気後退に伴う食料価格の下落や発展途上国での好調な収穫に基づいています。積極的な傾斜は実際には実現されず、飢餓は来年には増えると私は思います。


現在の新自由主義政策アプローチが有効であるかどうかを検討する際に常に念頭に置くべき一連の事実は、先進国では栄養不良の総人口の13%(2005  -  07年)があったのに対し、開発途上国では16%であった。パーセント。言い換えれば、「裕福な」世界は、貧しい人々を養うのにそれほどうまくいっていません。


英国のガーディアンの記事(2011年1月5日) - インフレの脅威は経済学者を分ける - 私たちは、いわゆる専門家が「原油価格と食料価格の高騰がインフレと金利の上昇をもたらすかどうかの問題で分裂する」と読みます。



成長するインドと中国の経済からのエネルギー需要を考えると、私は楽観的ではありません。私は最後にこのブログでその問題について推測しました - 私たちが望むものに注意してください…。








洪水の人間的、社会的要素は非常に重要になりますが、経済学者たちは実際のGDP成長率とインフレへの影響に焦点を当てており、そして現在の新自由主義的考え方 - 金融政策を考えています。

エコノミストは、現在のクイーンズランド州の洪水は、私の州(NSW)に向かって南へ流れる川のおかげであると予測しています。 Sydney Morning Heraldの記事 - 経済学者らは、深刻な短期的な波の影響について警告している(2011年1月6日)と、次のように述べています。











このブログでは - 現代の貨幣理論とインフレーション - 第1部 - 私はインフレのデマンドサイド理論とは何かについて概説しました。


デマンドプルインフレとは、名目総需要の伸びが実質生産高の拡大による対応能力を上回るために、物価が継続的に加速し始める状況を指す。 GDP(国内総生産)は、ある期間に生産された最終財およびサービスの市場価値です。

そのため、GDP = P.Yとなります。ここで、Pは総価格レベル、Yは実際の生産高です。総需要(支出)は常に(国内会計で)GDPまたはP.Yに等しくなります。したがって、Yの伸びでは満たせない需要の伸びがある場合は、Pを上昇させる必要があります。

ケインズは彼の有名な記事の中でインフレギャップの概念を概説しました -  J.M.ケインズ(1940)戦争のために支払う方法:Exchequerの首相のための急進的な計画。ロンドン:マクミラン。

厳しい供給制約(すなわち、実質生産高を拡大する能力が制限されていること)に直面したときの戦争時の支出という文脈の中であったが、インフレギャップの概念は一般的に超過需要の状況を説明するために一般化された。 )








これらのモデルでは、失業は労働者が賃金の伸びを得る能力を懲戒するものとして見られている - マルクスの失業思想の予備軍に沿って。


それで、私たちは「値上げの戦い」を手に入れます - 労働者はより高いお金の賃金を求めることによって彼ら自身のためにより多くの本当の生産を得ようとします、そして会社は上昇コストを渡すことによって彼らの利益の圧迫に抵抗しますマークアップ定数

その時点ではインフレはありません - 物価の一時的な上昇だけで、実質的には国民所得の分配に変化はありません。


その時点ではまだインフレはありません。しかし、企業が自社の実質生産高請求に対する圧迫を吸収しようとしないのであれば、彼らは再び価格を引き上げ、賃金 - 価格のスパイラルの始まりが始まる。このプロセスが続くと、コストプッシュ型のインフレが発生します。



1974年の今日のマルクス主義論には、労働者と資本の間の分配上の対立の結果であるインフレの概念を発展させた一連の記事がありました。 Pat Devine(1974)によるそのような記事の1つ、 『インフレとマルクス主義論』、Marxism Today、70  -  92年は、それを見つけることができれば読む価値があります。余談ですが、1977年以来のMarxism Todayの限られたアーカイブは非常に貴重な資料です。

当時のもう1つの有力な本は、ロバート・ローソーンの1980年の本 - 資本主義、紛争とインフレーション(ローレンスとウィシャート)です。





しかし、分配請求の合計(名目で表すと - マネー賃金需要と値上げ)が利用可能な実際のアウトプットよりも大きいとき、インフレーションは上記の賃金 - 価格または価格 - 賃金のスパイラルを通して起こります。


すなわち、利用可能な実質生産高をめぐる対立はインフレを促進する。次に、さまざまな次元を検討することができます。つまり、さまざまな賃金契約が重複して調整される範囲、生産性の成長率(利益率を圧迫することなく対応できる賃金需要に「余地」を提供する) (これは企業が増加するコストを引き継ぐ能力を規律している)、失業率(名目賃金の伸びを推進する労働者の能力を規律している)。







Pat Devineの記事(上記)はまた、インフレが構造的構成要素であるという概念を紹介しました。彼は、労働者の交渉力の増大(第二次世界大戦後の長期間の完全雇用を伴う)および1970年代初頭の生産性の低下がインフレへの構造的バイアスを与え、それが中期的なインフレブレークアウトに現れたと主張した。彼が言う1970年代は「黄金時代を終えた」。

この考え方は、完全雇用へのケインズ的なアプローチを意味しており、完全雇用と高い成長率を維持することを目的とした財政政策の実施がバイアスを生み出すための構造を提供したと述べている。それからBretton Woodsの転換通貨と固定為替相場の崩壊(国内需要の伸びが著しい経済にデフレ力をもたらした)とともに、これらの構造的バイアスが前面に出ました。



私の初期の論文の一つ(1987年) - オーストラリアの経済学論文 -  NAIRU、構造的不均衡およびマクロ均衡失業率 - において、私は













明確にするために - ヒステリシスの重要性は、もし存在すれば、安定的な物価に関連する失業率は、いかなる時点においても、拡大的なマクロ政策に対する厳格な非インフレ制約として考えるべきではないということです。




それでは、なぜ安定したインフレと一致する失業率があるのでしょうか。これは仕事の保証がない世界であることを忘れないでください。 JGの導入は物事をかなり(より有利に)変えるでしょう。




失業は一時的に労働と資本の相反する要求を、それらが資本の収益性の要求と両立するように労働の願望を規律することによって均衡させることができる。それが私がブログで考えていたカレッキの議論でした - ミハルカレッキ - 完全雇用の政治的側面。







私がその後に他の人によって築いてきたその後の経験的な研究は、NAIRUの概念を水から吹き飛ばした。私のブログを読んでください - 恐ろしいNAIRUはまだあります! - この点に関するさらなる議論のために。





それは決定的な違いです - もし十分な失業率を生み出したら、定義上労働者が生きるために働かなければならないことを考えれば、賃金の要求を抑えるというのは資本主義システムでは驚くことではありません。





動的なのは、輸入された資源が国内で配給可能な実質収入を減らすことです。何かを与えなければなりません。損失は​​、請求者のいずれかまたは別の人が負担または負担する必要があります。労働者がより低い実質賃金に抵抗するか、または上司が彼らの利益率のいくらかの圧迫が避けられないことを受け入れないならば、賃金 - 価格/価格 - 賃金のスパイラルが出現する可能性があります。


あるいは、失業を生み出すための財政および金融政策の引き締めを含むインフレプロセスを規律化するための戦略の組み合わせ(NAIRU戦略)を使用することもできます。合意所得政策の策定および/または賃金 - 価格ガイドラインの強制(合意なし)





もともと固定為替レート用に開発されたこのモデルは、経済を競争部門(C部門)と保護部門(S部門)に二分しています。 Cセクターは世界市場で取引されている製品を生産しており、その価格は世界価格の一般的な動きに従います。 Cセクターは、賃金決済のリーダーとしての役割を果たします。 Sセクターは自国の商品を対外的に取引しません。

固定為替相場では、Cセクターは、そのセクターにおけるマネー賃金の伸びが労働生産性の変化率(Sセクターの生産性よりも優れていると仮定)に外国の物価の上昇を加えたものに等しい場合、価格競争力を維持する。品。上記の規則が適用される場合、Cセクターの物価インフレは外国のインフレ率と同じです。 C部門で確立された賃金基準は、経済全体の賃金上昇に波及します。

したがって、Sセクターのインフレ率は、賃金規範から自社の生産性上昇率を引いたものに等しい。したがって、総物価インフレ率は、世界のインフレ率に、総生産量に占めるSセクターのシェアで加重したCセクターとSセクターの生産性成長率の差を加えたものに等しい。 Cセクターのインフレ率が世界のインフレ率以下であれば、国内のインフレ率は競争力を損なうことなく、外国価格の成長率よりも高くなる可能性があります。






S部門の生産物の価格は、その部門の単位人件費によって(通常は値上げによって)決定される。 C部門の賃金結果とS部門の生産性パフォーマンスが単位人件費を決定します。









交易条件の変更はどうですか? SMでは賃金上昇を正当化する取引条件の変更も、(実際には)交感神経の為替レートの変更を刺激します。名目賃金の相対的な固定性のため、この組み合わせは経済を競争力のない束縛に縛り付けます。物価下落と賃金上昇の両方を相殺するのに十分なほど為替レートが下落しない限り、Cセクターの収益性は圧迫されます。






このシリーズの第1部 - 現代の貨幣理論とインフレーション - 第1部 - で説明したように、コストプッシュ型インフレは、その燃料を求めるために一定の総需要条件を必要とします。この点で、供給側のインフレの概念は、デマンドプル型のインフレではあいまいになりますが、その発生力はまったく異なる可能性があります。




雇用バッファストックは、政府が政府の財政力を利用して、政府が雇用バッファストックアプローチに基づいて完全雇用を導入することを実現しています。 MMTの中心となる雇用保証(JG)モデルは、雇用バッファストックポリシーアプローチの一例です。














あなたが効果的な所得政策を考案することができればこれは全く可能です。 JGが導入されればインフレ制御は不要であるが、民間経済とJGプールの間の資源のシフトの規模を縮小することは問題があると考えるべきである。





合計脇に - ビルダーが周りにいるときに注意してください


ピッツバーグの一人の人にとってはそうではありません - ストーリーを参照してください。