Monday, September 12, 2011

Mark Hayes on Post Keynesian Economic Policies

Mark Hayes is Fellow and Director of Studies in Economics at Robinson College at Cambridge University, and also Secretary of the excellent Post Keynesian Economics Study Group (PKSG), which I highly recommend (it’s the of Post Keynesian economics!).

Mark Hayes gives a wide-ranging talk here on the practical policies advocated by Post Keynesians and the basics of Post Keynesian macroeconomic theory:
Mark Hayes, “The Post Keynesian (Policy) Difference,” 2010.
A transcript of the talk is also available here.

Some points:
(1) Hayes considers Modern Monetary Theory (MMT) as a branch of Post Keynesian economics. I have often done so too on this blog.

(2) Hayes’s summary of the Post Keynesian view on inflation stands out to my mind:
“Another implication of the principle of effective demand is that the money-wage determines not employment but the price level. There is no room in Post Keynesian theory for the quantity theory of money. Equally there is no room for the Marxist idea that class struggle can change the aggregate share of wages in national income. Of course an individual union can improve its relative position at the expense of other workers, but a rise in money-wages across the board simply produces inflation. The real wage and profit shares are determined by a combination of the degree of competition between employers and the rate of interest. The Post Keynesian remedy for inflation has always been some form of incomes policy combined with commodity price stabilisation.”
I have also written on the Post Keynesian cure for stagflation here.

(3) On financing of business and industry and speculation in financial asset markets:
“First of all, Post Keynesians follow Kalecki, Galbraith and Eichner in recognising the well-established empirical evidence about the financing of investment. This is that the vast majority of physical capital formation or accumulation is financed from the internal cash flow of large corporations supplemented to some extent by bank credit lines. The social purpose of the stock market is not to finance new physical investment but to permit transfers of existing assets, including corporate control. Its speculative tendencies are not in fact offset by the benefits for enterprise which Keynes allowed. Industry could function quite well without the equity market, given alternative institutions focused on enterprise rather than speculation. ....

Post Keynesians would, in the words of Winston Churchill, see finance less proud and industry more content. Keynes thought casino banking should be kept expensive and inaccessible. A significant transactions tax going well beyond the current stamp duty should be imposed – a tax on speculation.”


  1. The data does not support the "Quantity Theory of Money" Friedman's contention that "Inflation is always and everywhere a monetary phenomenon" is based on a very faulty analysis of data. See Art Shipman's article - The Greatest Scam of the 20th Century and Miscellaneous afterthoughts

    To make it seem more legitimate, you can take the inflation-adjusted output you're using, and call it "real" output. Then, no one will even question your work.

    In order to make "money relative to output" look like the price trend, you have to factor the price trend into the ratio. This is what Friedman did. It was a total scam. And everybody bought it.

  2. Friedman tried to show that V is stable - which is essentially the ratio between P.T and M

    It isn't and anything that relies on that fails with it.

  3. LK,

    Is Mark talking about cost-push inflation there?

  4. "Is Mark talking about cost-push inflation there? "

    Yes, though demand pull inflation can be dealt with by fiscal policy.