Friday, October 25, 2013

Lee’s Post Keynesian Price Theory: Chapter 10

Chapter 10 of Frederic S. Lee’s Post Keynesian Price Theory (Cambridge, 1998) looks at the Josef Steindl and the later development of his “stagnation thesis.” Again, this chapter is only of marginal interest for me, given that I prefer to concentrate on the central idea of administered prices.

I merely provide a brief sketch below.

Steindl used the theory of mark-up pricing in his “stagnation thesis”: the idea that over time oligopolies and large corporations would tend to dominate advanced capitalist economies, and that, because their profit margins would exceed new investment, over time the aggregate level of economic activity would tend to be dampened (Lee 1998: 192).

This thesis was taken up by certain Marxists such as Paul Baran and Paul Sweezy (Lee 1998: 193–194). Their book Monopoly Capital (1966) developed the “stagnation thesis” and argued that the tendency to stagnation was checked by (1) business advertising and sales promotions to create new demand for products and (2) government expenditure (Lee 1998: 196). Whatever the merits of this thesis, it did at least understand that many markets are dominated by firms that actively set prices to stabilise profits.

Another novel and interesting elaboration of the theory by Harry Magdoff and Sweezy himself was the idea that the financial sector provides another important element of the process: consumer credit from financial institutions promotes more demand but corporate spending on financial assets tends to reduce real capital investment and re-enforce the stagnation tendencies.

Lee, Frederic S. 1998. Post Keynesian Price Theory. Cambridge University Press, Cambridge and New York.

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