Abstract

Problems of Post-Keynesian Monetary Analysis: A Contribution to the Debate Opened by Professor Thomas Mayer

This article relates to the survey on monetary analysıs by Professor Mayer, which appeared in this journal*, and contains the following corrective and differentiating comments: (1) In Hicks’ version of IS/LM analysis there is a substitution relationship only between money and bonds. There is no substitution between real assets and either money or bonds. In Meltzer’s analysis, there is substitution in all directions between money and all assets; however, financial and real assets are treated as perfect substitutes. In the Brunner/Meltzer monetary analysıs, on the other hand, general and non-perfect substitution relationships are postulated between all assets in all directions. Among other things, this involves inclusion of the credit market in addition to a money market. (2) The still open debate on the Phillips curve can be summarized in the form of 3 theses: (a) In the short as well as the long run there ıs a trade-off between the inflation rate and employment. (b) That trade-off exists only over the long run. (c) There is neither a short-term nor a long-term trade-off (rigorous version of the “natural unemployment” thesis). These differences reflect important differences of opinion on the role of expectations and on supply behaviour on the goods market. 'The more recent monetarist studies conclude that the 1st thesis must be rejected. (3) In the Brunner/Meltzer analysıs, fiscal policy plays different roles in the short run and the long run. In the short run rising government expenditures increase private production, while in the long run this “purely” fiscal effect is augmented by a - dominating - financial effect, which leads to “crowding out”. (4) According to the Keynesian view, the private sector ıs relatively unstable and the government is therefore regarded as the “ultimate stabilizer”. The monetarist view is exactly the contrary and avers in particular that the private sector is a shock-absorbing, self-adjusting mechanism. The larger the public sector (relatively speaking), the greater is the instability it causes. (5) Monetarist analysis prefers “small models” and does not support the view of many econometricians that all (or as many as possible) allocative details must be included in a model in order to be able to analyse aggregative phenomena. Increasing importance is being attached to adequate consideration of anticipatory reactions.