The Political Economy of Wages, Inflation and Unemployment

As we have seen, many mainstream or, more accurately, ‘economistic’ explanations for the collapse of Keynesianism are to be found focusing on the simultaneous occurrence of high inflation and persistent unemployment levels in advanced OECD countries — something that so-called Keynesianism had said to be impossible. Yet it has been suggested that an understanding of Keynesianism which contends that unemployment and inflation could not occur together, is grossly deficient. This deficiency is not only in its attributing stagflation to the practice of Keynesian policy, but in ascribing Phillips Curve Keynesianism to a series of phenomena that left-Keynesians, post-Keynesians, and Kaleckians already had warned against well before Phillips had published his influencial article in 1958.1 By way of contrast, the view adopted here is that arguments grounded in an economics which claims that it can explain — independently of politics — the workings of a capitalist economy are to be rejected as deficient. Specifically, this deficiency lies in the way such explanations ignore political explanations for how and why inflation occurs, how and why unemployment occurs, and how and why these two entities might occur together. To provide such explanations, and, in so doing, to reject the claims made by neoclassical and monetarist economists, is the purpose of this chapter.