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lecture notes 8 - Personal Home Pages (at UEL)

lecture notes 8 - Personal Home Pages (at UEL)

lecture notes 8 - Personal Home Pages (at

From Massimo De Angelis 2000. Keynesianism, Social Conflict and Political Economy. London: Macmillan. Chapter 10. Economic Modeling and Social Conflict II: Inflation and the Phillips Curve. 10.1. Introduction The basic assumption of the Neo-classical Synthesis in its simplest form was fixed wages and prices. This assumption allowed a simple method of aggregation and put emphasis on government policies to manage the level of accumulation for a given balance between necessary and surplus labor. However "the consequences of doing it were serious" (Hicks 1974:60). The consequences Hicks is referring to are those related to the lack of a proper theory of inflation, or the relation between wages and inflation. For when Keynes' theory is set out in this text-book manner (as I shall call it) it is bound to give the impression that there are just two `states' of the economy: a `state of unemployment' in which money wages are constant, and a `state of full employment' in which pressure of demand causes wages to rise. So `full employment' is an `inflation barrier'. As long as employment is less than full, even if it is only marginally less than full, there should be no wage-inflation. So all we need do, in order to have `full employment without inflation', is suitably to control demand (Hicks 1974:60-61). Hicks recognizes that this text-book version of Keynes' economics "is by no means clear that it was Keynes's own," also because "it is hard to see that in his book he has any theory about the causation of 1

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