Post-Keynesian Economics: New Foundations by Marc Lavoie
Chapter 8: Inflation Theory

ABSTRACT

The conflicting claims approach to the theory of inflation so thoroughly surveyed and well presented in Chapter 8 of Lavoie's [(2022). Post-Keynesian Economics. New Foundations. Cheltenham, UK: Edward Elgar Publishing] book is deservedly becoming increasingly consensual among heterodox (and even some notable mainstream) macroeconomists. However, the relevance of a concept (and the very existence of) a single NAIRU (Non-Accelerating Inflation Rate of Unemployment) derived consistently from the very premises of the conflicting claims approach is still very controversial. In this review article, we will be to argue that a NAIRU is not really useful for the conflicting claims approach. The key aspects explored here are: (1) the different roles of hysteresis in the output and labor markets; (2) the assumptions concerning real profit markups of firms; and (3) the extent to which money wage increases actually incorporate past (or expected) inflation. We also add some remarks regarding the role of changes in international commodity prices and nominal exchange rates that further illustrate the necessary relation between conflicting claims inflation and the theory of distribution and relative prices.

KEYWORDS:

• NAIRU
• conflicting claims inflation
• inflation theory
• Marc Lavoie
• Sraffian School of Thought

JEL CODES:

• E30
• E31
• E52
• B50
• B51

Acknowledgements

The authors would like to thank but not to implicate an anonymous referee and Marc Lavoie for their very useful comments and corrections on a previous draft.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 This adjustment mechanism is partially different from that proposed by both Palley (2019) and Fazzari, Ferri, and Variato (2020), as explained in Serrano, Summa, and Freitas (2023, section 3.7).

2 Researchers at the old Cambridge Economic Policy Group (CEPG) also always started with given nominal markups on historical costs and then argued that only when firms could collectively increase prices more frequently than wages a given real markup on replacement cost would obtain (Tarling and Wilkinson 1985).

Additional information

Funding

This work was partially supported by Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)-Brazil grant 315572/2021-3.