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Macroeconomic Policy and Abba Lerner’s System of Functional Finance


  • The author thanks two referees for helpful comments and suggestions. This is a revised version of a (refereed) paper written for the 12th Path to Full Employment Conference, Centre for Full Employment and Equity, University of Newcastle, 2–3 December 2010.

Neil Hart, School of Economics and Finance, University of Western Sydney, Locked Bag 1791, Penrith, NSW 2751, Australia. Email:


Lerner’s system of functional finance, said to have provided the logical framework for Keynes’s policy, has largely been neglected in the recent literature and policy deliberation. This paper considers the relevance of Lerner’s system and at the same time provides a critique of the opposing “sound finance” doctrine that governs much of the current thinking on macroeconomic policy making in the shadows of the Global Financial Crisis (GFC).