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Contemporary Post Keynesian Analysis

Edited by L. Randall Wray and Mathew Forstater

Original articles by leading scholars of post Keynesian economics make up this authoritative collection. Current topics of the greatest interest are covered, such as: perspectives on current economic policy; post Keynesian approaches to monetary theory and policy; economic development, growth and inflation; Kaleckian perspectives on distribution; economic methodology; and history of heterodox economic theory. The contributors explore a variety of prevailing issues including: wage bargaining and monetary policy in the EMU; the meaning of money in the internet age; stability conditions for small open economies; and economic policies of sustainable development in countries transitioning to a market economy. Other enduring matters are examined through the lens of economic theorists – Kaleckian dynamics and evolutionary life cycles; a comparison between Keynes’s and Hayek’s economic theories; and an analysis of the power of the firm based on the work of Joan Robinson, to name a few.
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Chapter 6: Demand Management and the Monetary System: Do Currency Boards and Currency Unions Spell the End for Keynesian Policy?

Stephanie A. Bell


Stephanie A. Bell In 1943, Abba Lerner defended the virtues of discretionary fiscal policy in an article entitled ‘Functional finance and the federal debt’. His defense went well beyond the standard pump-priming arguments favored by soft-core Keynesians like Alvin Hansen. That is, rather than arguing for temporary spending programs, designed to grease the wheels of commerce, Lerner argued that public policy should always be conducted in accordance with two fundamental ‘laws’ or principles. The first of his principles makes it incumbent on the government to maintain spending at the level necessary to generate full employment, while the second specifies the manner in which the first principle is to be carried out. Specifically, the second principle calls for the government to avoid raising taxes or borrowing in order to offset the spending it undertakes in accordance with the first principle. Lerner termed his approach ‘Functional Finance’ because it requires the government’s financial activities to be evaluated on the basis of the way they work or function, instead of following established rules regarding fiscal piety.1 The problem with Lerner’s 1943 article is that it made Functional Finance sound like a viable option for all nations, regardless of the monetary system in place. He said: Functional Finance is not especially related to democracy or to private enterprise. It is applicable to a communist society just as well as to a fascist society or a democratic society. It is applicable to any society in which money is used as an important element...

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