Abstract
Is there still a role for discretionary Keynesian policy in the 1990s? Or is the problem of inflation so endemic to the Western democratic psyche that in future macroeconomic policy should be the preserve of an impartial monetary technocracy proscribed by fixed monetary rules? By addressing these questions this paper aims to contribute to the debate on the decline of Keynesian economics and the preference of current economic orthodoxy for targeting money rather than real variables. It is now commonplace to point out that the decline of Keynesian demand management was associated with the phenomenon of stagflation, which in turn led to the decline of the social democratic consensus. This consensus had been critical in underpinning Keynesian economics.1 Thus an understanding of the inflation process would seem to be essential to understanding not only the reasons for the Keynesian decline but also the extent to which Keynesian policies can be used in the future restoration of full employment.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
Endnotes
The end of the alleged Keynesian consensus is discussed in, inter alia, R. Skidelsky, The End of the Keynesian Era: Essays on the Disintegration of the Keynesian Political Economy (London: Macmillan, 1977),
J. W. Dean, ‘The Dissolution of the Keynesian Consensus’, in D. Bell and I. Kristol (eds), The Crisis in Economic Theory (New York: Basic Books, 1981),
M. Bleaney, The Rise and Fall of Keynesian Economics: An Investigation of its Contribution to Capitalist Development (London: Macmillan, 1985),
and F. W. Scharpf, Crisis and Choice in European Social Democracy (Ithaca: Cornell University Press, 1991). The American literature views the period post-war of discretionary Keynesianism as less of a social accord but more of an ‘accomodation’;
see T. E. Weisskopf, S. Bowles and D. M. Gordon, Hearts and Minds: a Social Model of U.S. Productivity Growth, Brookings Papers on Economic Activity, No. 2 (1983), pp. 381–441,
S. Bowles, D. M. Gordon and T. E. Weisskopf, Beyond the Wasteland: A Democratic Alternative to Economic Decline (New York: Anchor Press/Doubleday, 1983),
and R. Edwards and M. Podgursky, ‘The Unravelling Accord: American Unions in Crisis’, in R. Edwards, P. Garonna and F. Todtling, Unions in Crisis and Beyond: Perspectives from Six Countries (Dover, MA: Auburn House, 1986).
A fuller justification for this wider conception of corporatism is provided in A. Henley and E. Tsakalotos ‘Corporatism, Profit Squeeze and Investment’, Cambridge Journal of Economics, vol. 15 (1991).
The seminal exposition of this is to be found in T. J. Sargent and N. Wallace, ‘Rational Expectations, the Optimal Monetary Instrument and the Optimal Money Supply Rule’, Journal of Political Economy, vol. 83 (1975), pp. 241–54.
Among the most important articles in the PCTC literature are F. Kydland and E. C. Prescott, ‘Rules Rather than Discretion: the Inconsistency of Optimal Plans’, Journal of Political Economy, vol. 27 (1977), pp. 253–79,
R. J. Barro and D. B. Gordon, ‘Rules, Discretion and Reputation in a Model of Monetary Policy’, Journal of Monetary Economics, vol. 12 (1983), pp. 101–22,
D. Backus and J. Driffill, ‘Inflation and Reputation’, American Economic Review, vol 75 (1985), pp. 530–8 and
K. Rogoff, ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’, Quarterly Journal of Economics, vol. 100 (1985), pp. 1169–89.
N. G. Mankiw, ‘A Quick Refresher Course in Macroeconomics’, Journal of Economic Literature, vol. 28 (1990), pp. 1645–1660.
see C. Goodhart, Money, Information and Uncertainty, 2nd ed., (London: Macmillan, 1989), p. 362.
An excellent survey of theoretical and empirical developments in the PCTC approach is provided by K. Blackburn and M. Christensen, ‘Monetary Policy and Policy Credibility: Theories and Evidence’, Journal of Economic Literature, vol. 27 (1989), pp. 1–45.
G. Tabellini, ‘The Politics of Inflation and Economic Stagnation: a Review Essay’, Journal of Monetary Economics, vol. 19 (1987), pp. 458.
See R. MacDonald and R. Milbourne, Recent Developments in Monetary Theory, Dundee Discussion Papers in Economics, No. 9 (April 1990).
P. Krugman, The Age of Diminished Expectations (Cambridge, MA: MIT Press, 1990), pp. 84–5.
J. H. Goldthorpe, ‘Problems of Political Economy after the Post-war Period’, in C. S. Maier (ed.), Changing Boundaries of the Political (Cambridge: Cambridge University Press, 1988), p. 378.
See for example O. Blanchard and L. Summers, ‘Hysteresis and the European Unemployment Problem’, in S. Fischer (ed.) NBER Macroeconomics Annual (Cambridge, MA: MIT Press, 1986) and
A. Lindbeck and D.J. Snower, The Insider-Outsider Theory of Employment and Unemployment (Cambridge, MA: MIT Press, 1989).
J. Cornwall (1987) ‘Inflation and Growth’ in J. Eatwell, M. Milgate and P. Newman (eds), New Palgrave Dictionary of Economics (London: Macmillan), p. 839.
J. H. Goldthorpe, Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984).
See, for example, the extensive discussion in S. Marglin and J. Schor (eds), The Golden Age of Capitalism: Lessons for the 1990s (Oxford: Clarendon Press, 1990).
M. Kalecki (1943), ‘Political Aspects of Full Employment’, The Political Quarterly, vol. 14, pp. 322–331.
This is discussed in the context of the end of the post-war boom in A. Henley, Wages and Profits in the Capitalist Economy (Aldershot: Edward Elgar, 1990), ch. 8.
R. Layard and S.J. Nickell, ‘Unemployment in Britain’, Economica, vol. 53 (1986), pp. sl21–sl69,
R. E. Rowthorn, ‘Conflict Inflation and Money’, Cambridge Journal of Economics, vol. 1 (1977), pp. 215–239.
Full expositions of the literature on such models are provided by W. Carlin and D. Sockice, Macroeconomics and the Wage Bargain: A Modern Approach to Employment, Inflation and the Exchange Rate (Oxford: Oxford University Press, 1990) and
R. Layard, S.J. Nickell and R. Jackman Unemployment: Macroeconomic Performance and the Labour Market (Oxford: Oxford University Press, 1991).
Empirical evidence for this is provided by D. Grubb, R. Jackman and R. Layard, ‘Wage Rigidity and Unemployment in OECD Countries’, European Economic Review, vol. 21 (1983), pp. 11–39,
M. Bruno and J. Sachs, The Economics of Worldwide Stagflation (Oxford: Blackwell, 1985),
A. Newell and J. S. V. Symons, ‘Corporatism, Laissez-faire and the Rise in Unemployment’, European Economic Review, vol. 31 (1987), pp. 567–601,
L. Calmfors and J. Driffill, ‘Centralization of Wage Bargaining and Macroeconomic Performance’, Economic Policy, No. 6 (1988), pp. 13–61 and Layard, Nickell and Jackman, op. cit.
R. E. Rowthorn, Demand, Real Wages and Economic Growth, Thames Papers in Political Economy, Thames Polytechnic (1981).
M. Bleaney, ‘Monetary Targetting and Policy Credibility in a Non-market Clearing Model’, Economic Journal, vol. 101 (1991), pp. 473–82.
See A. Pizzorno, ‘Political Exchange and Collective Identity in Industrial Conflict’, in C. Crouch and A. Pizzorno, The Resurgence of Class Conflict in Western Europe since 1968 (London: Macmillan, 1978) and Scharpf, op. cit.
The importance of this is discussed by K. Faxen, ‘Incomes Policy and Centralised Wage Formation’, in A. Boltho, The European Economy: Growth and Crisis (Oxford: Oxford University Press, 1982) and
by G. Lehmbruch, ‘Concertation and the Structure of Corporatist Networks’, in J. H. Goldthorpe (ed.), Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984).
The ‘evils’ of Keynesian discretionary policy in this respect are articulated in J. M. Buchanan and R. E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes (New York: Academic Press 1977).
See the discussion of this in G. Hodgson, The Democratic Economy: A New Look at Planning Markets and Power (Harmondsworth: Penguin, 1984) and
E. Tsakalotos, Alternative Economic Strategies: The Case of Greece (Aldershot: Avebury, 1991).
B. Eichengreen, ‘Currency Union’, Economic Policy, No. 10 (1990), pp. 118–166.
C. Leys, ‘Thatcherism and British Manufacturing’, New Left Review, No. 151 (May–June 1985).
On the issue of corporatist concertation see G. Lehmbruch, ‘Concertation and the Structure of Corporatist Networks’, in Goldthorpe (1984), op. cit.
R. Skidelsky, ‘The Decline of Keynesian Politics’, in C. Crouch (ed.), State and Economy in Contemporary Capitalism (London: Croom Helm, 1979), p. 63.
As discussed in a series of papers in F. Hirsch and J. H. Goldthorpe (eds), The Political Economy of Inflation (Oxford: Robertson, 1978).
Editor information
Editors and Affiliations
Copyright information
© 1993 Palgrave Macmillan, a division of Macmillan Publishers Limited
About this chapter
Cite this chapter
Henley, A., Tsakalotos, E. (1993). Monetary Rules Versus Consensual Discretion: Corporatism and the Future of Keynesian Policy-Making. In: Crabtree, D., Thirlwall, A.P. (eds) Keynes and the Role of the State. Keynes Seminars. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-22708-2_7
Download citation
DOI: https://doi.org/10.1007/978-1-349-22708-2_7
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-22710-5
Online ISBN: 978-1-349-22708-2
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)