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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 11: Commodity Prices and the Dynamics of Inflation in Australia

Harry Bloch and David Sapsford


11. Commodity prices and the dynamics of inflation in Australia* Harry Bloch and David Sapsford INTRODUCTION Explanations of inflation tend to emphasize domestic market conditions, particularly labor market institutions and the strength of demand for domestic output relative to productive capacity. In the present chapter we examine an additional influence on the inflationary process, namely the prices of primary commodities. Our approach is to incorporate primary product prices into a structural model of pricing that is developed from the pricing analysis of Michal Kalecki. Kalecki (1971, ch. 5) treats the cost of finished goods as determined by both the prices of primary commodities used as raw materials and the wage rates of industrial labor. He then argues that primary commodity prices have a stronger positive relationship to the business cycle than do wage rates, so the ratio of primary commodity prices to wage rates is pro-cyclical. Further, prime costs are marked up to determine finished goods prices, implying cyclical variation in the real wage rate and distribution of income. We employ Kalecki’s pricing analysis to consider the implications for the dynamics of inflation arising from the cyclical behavior of primary product prices. Our particular concern is that the pro-cyclical movement in primary commodities relative to wage rates can set off a wage-price spiral for finished goods through the resulting pressure on the nominal wages of industrial workers. Of course, this scenario can also work in reverse, as Beckerman and Jenkinson (1986) suggest in explaining the...

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