Comment on Professor Lerner’s Paper: A Marxist View

Abstract

Lerner’s argument can be divided into two parts, one dealing with the asymmetrical working of the price mechanism in the Keynesian system and one dealing with the measures necessary to keep the wage/productivity relation constant. The latter part is essentially dynamic in character and it ends with the proposal of issuing wage permits as a means to curb cost-push inflation. I shall not discuss the practical validity of the above suggestion but shall confine myself to the theoretical content of Lerner’s argument. The Keynesian multiplier in its simplest form asserts that it is possible to move from a given degree of unused capacity output to full capacity (when the latter is supposed to coincide with full employment) without any major change in the cost-price relations. When the full-employment level of output is reached, any further increase in money income will be reflected in prices, since the existing level of capacity cannot accommodate the additional demand in real terms. The above mechanism suggests that prices do not regulate supply and demand, but the level of profits and the distribution of income instead. This is possible only because spare capacity exists; otherwise any adjustment must be brought via movements in prices. In an economy where prices have lost the role of equilibrating supply and demand, inflation cannot be curbed by curtailing the level of monetary expenditure, since to a reduction in spending there will be a corresponding fall in output and employment.