Government Deficit Spending and Inflation: Alain Parguez and the Post-Keynesians

Abstract

This article briefly recounts this author’s personal experience with Alain Parguez and sketches some of his important contributions over four decades. It then tackles the contemporary policy controversy concerning net public spending and inflation, which is once again contentious in today’s inflationary environment. Alain Parguez’s viewpoint was diametrically opposed to the Hayekian position that deficit spending is inevitably inflationary; the latter presumed positive relation between deficits and inflation being questioned by simple empirical evidence available from Western industrial countries. In his writings, instead, Parguez defended a strong Keynesian position on the productive role of public spending. Outside of interest payments on the public debt, he considered public spending broadly in the nature of public investment unassociated with any predictable inflationary consequences, except perhaps in a fully-employed economy. “Good” public budgetary deficits generate much-needed physical productive capital but also essential human/social capital via government transfers. This view is contrasted with the views of two other celebrated post-Keynesian/circuitist writers, Augusto Graziani and Hyman Minsky, who despite important common features of their analyses vis-à-vis those of Parguez, held a somewhat different view of the inflationary impact of deficit spending.