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Inflation and a national wage policy in peacetime

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Inflation and a national wage policy in peacetime

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Content INFLATION AND A NATIONAL WAGE POLICY
* 1
IN PEACETIME
A Thesis
Presented, to
the Faeulty of the Department ©f Economies
The University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Master of Arts
by
Benjamin H. Cunningham
t t !
August 1959
UMI Number: EP44770
All rights reserved
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UNIVERSITY OF SOUTHERN CALIFORNIA
GRADUATE SCHOOL
UNIVERSITY PARK
LOS ANGELES 7
Ee■ Go 0 - 973
T his thesis, w ritte n by
BENJAMIN H. CUNNINGHAM
alS’4 c
sented to and accepted by the F a c u lty o f the
G raduate School, in p a rtia l fu lfillm e n t of the
requirements fo r the degree of
Master of Arts
under the guidance o f h T 3 ....F a c u lty Com m ittee,
and approved by a ll its members, has been pre-
Dean
D ate -August, - 19-59.........
Faculty Committee
TABLE OP CONTENTS
CHAPTER PAGE
I. INTRODUCTION ................................. 1
Statement of the Problem................. . 2
Importance of the Study.................. 2
Definitions of Terms Used ................ 3
Inflation . ............................ 4
Cost-push inflation ............... . . . 4
Demand-pull inflation .................. 4
Expansion-pressure inflation . ........... 5
Basic inflation.......................... 5
Cooperative national wage policy ........ 5
Supervised or administrated national
wage policy.......................... 5
Pacing a Problem.................. 6
New ideas v. status q u o ................ 10
Policy failure .................... 11
Thinking ahead ........................ 12
Economic planning and economic policy . . 14
Encourage and appraise new ideas ......... 16
Statement of Organization into Chapters . . 19
Statement of the Sources of Data ........ 20
II. STANDING AT THE CROSSROAD.................. 23
No Perfect Economic System ................ 23
Keynes: A Friend of Private Enterprise . . 26
The Liberal at the Crossroad.............. 28
iv
CHAPTER PAGE
III. THE PROBLEM OP INFLATION.................... 31
Inflation: What Is I t ? .................. 32
A definition.......... 32
Cost-push inflation .................... 38
Demand-pull inflation.................. 41
Expansion-pressure inflation . 45
Basie inflation ...................... 48
Other Types of Inflation.................. 50
Bottleneck inflation ..... .......... 51
Wage inflation . 52
Demand inflation ........................ 54
Cost inflation.............. 54
Price inflation........................ 54
Markup inflation ........................ 55
Sellers* inflation ...................... 55
Planned inflation ...................... 55
"Spend-yourself-rieh inflation**........ 56
Credit inflation ........................ 57
Currency inflation ................ 58
Fixed-Income Groups ............ 59
Creditor and debtor ............ 59
Bondholders and pensioners .............. 60
Collective Bargaining or Collective
Coercion?............................... 63
Collective coercion .................. . 63
V
CHAPTER PAGE
The counter argument .................... 65
Conclusions.................... 66
IV. A REVIEW OF WAGE THEORIES.................. 68
The Just W a g e ............................ 69
Subsistence Wage ............ TO
The Exploitation Theory.................. 76
The Wage-Fund Theory ...................... T6
The Residual Claimant Theory ........ . . . 78
The Marginal-Produetivity Theory ...... 78
The Bargain Theory .............. 80
The Purchasing-Power Theory .............. 83
The Contractual Wage Theory.............. 86
Wanted: A Wage Theory.......... 87
V. THE PROBLEM IN RELATION TO A NATIONAL
WAGE POLICY . .......................... 89
Why a National Wage Policy .. 90
The Keynesian wage policy.............. 93
A National Wage Policy in Peacetime .... 95
A cooperative national wage policy . . . • 95
A supervised or administered national
wage poliey.......................... 103
A Hypothetical Supervised National
Wage Policy............................ 108
The agency............................... 108
Its functions.......................... 109
vi
CHAPTER PAGE
The Subtle Attack . ................... 112
Faces toward Washington, D. C............ 113
Objections of direct controls .......... 117
VI. ANTI-INFLATION PLANS.......................... 121
Deferred Fay~~Plan..................... 122
Anti-Inflation Taxation ..... ......... 124
Overvalued Exchange Value of Currency ... 126
Gold Sterilization P l a n .............. 127
Forced L o a n ...................... 128
The Tariff P l a n ............ 128
A Proposed Trade-Union Wage Policy ..... 130
Eceles ' Plan........................... 131
Hansen's Office of Price Research ..... 132
The CEB Plan........................... 133
Galbraith's CGC and Public Tribunal Law . . 136
The Burns Plan .......................... 141
VII. A NEW OUTLOOK........................... 146
The Countervailing-Power Wage Policy .... 147
Getting Into Focus..................... 156
The function of the American political
parties............................ .. 156
The major economic power groups ...... 157
Conclusions and Recommendations . ...... 159
The author and Keynes............... 159
Expans ion-pressure inflation............ 161
vii
CHAPTER PAGE
A new outlook............................. 161
Rejection of a supervised and voluntary-
national wage policy in peacetime . . . 163
Recommendation— a countervailing-power
wage policy............................ 166
BIBLIOGRAPHY ...................................... 169
CHAPTER I
INTRODUCTION:
Some twenty years ago Americans faced an economic
depression that as yet has not had its equal in these
United States. Professional economists, politicians, and
academicians have stodied and written about the ”Great De
pression.” One would imagine that almost every facet of
this depression has been subjected to some Rind of intel
lectual study.
Even now while the spectre of inflation hovers
over this country one is not at a loss to find or hear of
a new study about this depression. As one economist has
already pointed out, Americans are still suffering from a
f f depression psychosis”^ at a time when we are facing an
entirely new economic problem.
Although the discussion of inflation has gained
more public attention, especially since this thesis was
started, one only has to note the type of legislation that
is being enacted today to see that our attention is still
primarily centered on depression.
Inflation has not yet found its place in the hall
of infamy*
John Kenneth Galbraith, American Capitalism: The
Concept of Countervailing Power (revised edition; Boston:
Houghton Mifflin Company, 1956), pp. 63-83.
2
I. STATEMENT OP THE PROBLEM
It is the purpose of this study (l) to determine
when and how to face a problem; (2) to define the problem
of inflation and to set definitions in order; (3) to in
vestigate, analyze, and make an appraisal of the validity
of a national wage policy in peacetime as a solution to
inflation; and (4) to summarize and to propose what is
believed to be a sound and realistic solution of inflation.
II. IMPORTANCE OF THE STUDY
In the light of recent economic developments in
the United States, that is, the position of the American
economy following World War II and the Korean War, it has
become apparent to some economists and politicians that the
problem of inflation poses a greater threat to prevailing
economic policy than does the problem of depression and re
cession, At present there are only a few outspoken advo
cates of a national wage policy, but there is reason to
suppose that in the not too distant future this policy will
gain ground and its advocates will become more vociferous.
The importance of the study is not to determine
whether we are faced with inflation or not in the American
economy. It is to determine what kind of inflation we are
experiencing.
Hence, it will be necessary to determine whether
inflation per se is detrimental to the American economy,
_ , 3“
and also if it is beneficial. In so doing it will lead us
into an investigation of the "evils of inflation.” This
will turn our attention to that segment of the economy
that is penalized by any hind of inflation. We shall want
to know what is being done to correct this unfavorable
situation. If nothing is being done, then we shall want
to know why.
A study of a national wage policy will make it
necessary to take a look at the organized segment of the
labor market. In peacetime inflation we shall want to
learn if collective bargaining is a sound poliey for the
unions to pursue or if collective bargaining is really
"collective coercion" as some have indicated that it is.
The thesis is limited in the sense that (l) it is a
produet of a student and not an authority of national or
international repute; (2) that it is impossible to know
what is being written at this moment about this problem
until it is published; and (3) the selection and rejection
of personal choice and is always subjeet to sincere criti
cism.
III. DEFINITIONS OF TERMS USED
One of the most common causes of heated debates
and hurt feelings is the failure to set definitions in
order before proceeding to discuss a problem or topic.
In this paper it is necessary to define inflation
4
not for the reason of insisting that it is the only true
definition, hut in order to assist the reader in knowing
what the author means when the term inflation is used*
Since it is generally accepted that there are or
may he different kinds of inflation, it will he necessary
to define these various kinds.
Also it is recognized and acknowledged that others
may use the same term hut not define or use the term as it
will he used in this paper.
Inflation. The general term, inflation, will he
defined as a general and sustained rise in the price level
which tends to cause a decline in the purchasing power of
money. It may he either a rapid decline or a slow decline
in purchasing power.
Cost-push inflation. The term, cost-push infla
tion, will he used to denote a rise in production costs
among other things due to the successful union demands for
wage increases that exceed productivity.
Demand-pull inflation. The term, demand-pull in
flation, will he used to designate the type of inflation
caused hy among other things government spending through
the creation and use of new money. That is, government
spending made possible hy operating on excessive amounts
of credit or hy printing new money. Such an inflation
usually takes place when the demand for goods already
i 5
exceeds the supply. The additional amounts of demand hy
government, among other things, gives impetus to a flight
from money to goods.
Expansion-pressure inflation. When this term is
used it is meant to convey the idea that this kind of
inflation is caused by the spending of money for expansion
(new plants and machinery) by plant and firm owners. It
is a by-product of economic expansion and growth.
Basic inflation. This term is used to denote the
type of inflation that is in force during the recovery
phase of an economic cycle whether coming out of a depres
sion or recession. It is caused by an increase in con
sumption and investment expenditures that generally follow
a depression or recession.
Cooperative national wage policy. This term is
used to designate a national wage policy that is volun
tarily set up and enforced by both labor and management
without government intervention.
Supervised or administrated national wage policy.
This is a national wage policy that is set up and admin
istered by the federal government, state government, or
both.
IY. PAGING A PROBLEM
6
It is recognized and immediately conceded that the
problem of inflation has been with the human' race a long
time as has been the problem of depression. Only until
recently has a somewhat satisfactory explanation of the
cause and effect of depression been presented to the world,
and in addition, some proposals on how to eombat the fur
ther occurrence of the unnecessary social waste that de
pression leaves in its wake. The author is, of course,
referring to the economies of John Maynard Keynes as
partially set forth in his book, The General Theory of
2
Employment. Interest, and Money. Although at first
Keynes’ work was received with little enthusiasm, it has
since been widely accepted into the body of economic
thought as a major step in the direction of resisting or
curtailing economic depression. And by stating that The
General Theory has been widely accepted, the author does
not mean to imply that this theory has been universally
embraced nor utilized in its entirety. It is only to indi
cate that The General Theory has made major inroads into
what was, up until 1936, once the "sacred cow” of economies
— neoclassical theory and policy.
It seems safe to state that neoclassical theory
2
John Maynard Keynes, The General Theory of Em
ployment, Interest, and Money (New York: Harcourt, Brace
and Company^ 1936) .
7
and poliey, as far as a satisfactory solution to economic
depression is concerned, was weighed in the balance and was
found wanting following the stock market crash in 1929.
The "man in the street,B who concerns himself as little as
possible with economics and polities (and with good reason
since much of the writing in both fields is more academic
than enlightening as well as cloaked in mythology and non-
eojumunieative terminology), at least was aware of the fact
that something had gone drastically wrong, and it was time
for a new course of action and new ideas. Quite naturally
the "man in the street” turned to his representatives in
government and to trained economists for the solution to
the dilemma he found himself involved in. The reiteration
of ”old” and ”tired” solutions was * not capable of lulling
him into a state of non-resistance as did the mythical
Sirens who sang sweetly to the wayfaring sailors of
Odysseus. The political and economic events of the wbrld
at the time would not permit it. No, there must be a new
and better solution far short of socialism and communism.
Keynes' answer seemed to be better suited for maintaining
a capitalistic system.
Now Keynes did not seek to destroy the capitalistic
system but rather he sought a way to modify this system
that he believed was capable of working if revisions were
made to correct its weaknesses. He indicated this when he
said:
8
Eat, above all, individualism, if it can be purged
of its defects and its abuses, is tbe best safeguard
of personal liberty in the sense that, compared with
any other system, it greatly widens the field for the
exercise of personal choice. It is also the best safe
guard of the variety of life, which emerges precisely
from this extended field of personal choice, and the
loss of which is the greatest of all the losses of the
homogeneous or totalitarian state. Por this variety
preserves the traditions which embody the most secure
and successful choices of former generations; it
colours the present with the diversification of its
fancy; and, being the handmaid of experiment as well
as of tradition and of fancy, it is the most powerful
instrument to a better future.3
Xt should be pointed out in all fairness to those
who still object to Keynesian economic policy that although
some of his policies were used in the United States during
the Great Depression, they were not extremely successful.
One reason, of course, is that his policy for revival was
not pursued with too much enthusiasm in this country. Xt
is true that a good deal of criticism was levied at the
FDE Administration for daring to try such an economic
policy. Some of which was called for and some was un
called for. It is also true that the Administration re
vealed oy its actions that it was not entirely sure that
such a poliey would work, and, consequently, it led the
nation half-heartedly toward revival. In addition, the
Administration did not give evidence that it had a defi
nite and well organized economic policy to submit to the
legislators. In other words, to be perfectly honest and
3Ibid.. p. 380
objective, Keynesian policy was not given a true test under
actual conditions of depression. And this is not to imply
that Keynesian policy does not contain contradictions and
fallacies. It does, and, in addition it has created new
problems and aggravated old ones, such as inflation.
Furthermore, it does not mean that had his policy been
followed to the t t Tt t that it would have worked as success
fully as he indicated. We shall never know. It is an
historical fact that when the United States entered World
War II the Great Depression had not yet been eradicated
after almost ten years of attempts at revival.
So it can be said by the opponents of Keynesian
policy, safely but unwisely, that this new theory and
poliey was not too successful. It is, however, obvious to
a thinking person, that is to say one who is moved less by
his emotions and mythology, that the weakness rested more
with the policy-makers than it did with the poliey. The
policy-makers lacked a well-prepared plan of action from
the start. They behaved mueh like the proverbial farmer
throwing mud at the barn door. He figured if he threw
enough mud for a considerable length of time, some of it
4
was bound to stick. A great deal of physical exertion
4
To this day there has never been a satisfactory
reason given as to why the farmer was throwing mud at the
Ibarn door in the first place. So if this does not disturb
the reader, the author will make no attempt to explain the
farmer’s action. If the reader does find this unusual ac
tion disturbing, then it is suggested that paint be sub
stituted for mud. The principle remains the same.________
for small results. There obviously must be a better way.
Yet, in defense of Keynesian policy, it should be
pointed out that at present both major political parties
in the United States have shown a willingness to use some
of the Keynesian poliey to -prevent a depression and to
bring the nation's economy out of a recession by encourag
ing government spending. This was evident during the
1948-1949, 1953-1954, and the 1957-1959 recessions.
Keynes has been advanced to purgatory by the neoclassical
"saints."
New ideas v. status quo. There are several sig
nificant points that can be made on the basis of what has
already been said, and they are related to what we are
about to investigate in this paper. The first point is
that new ideas are not readily accepted even if there is
enough evidence to show that the status quo will not be
seriously disturbed* Radicalism is one thing that should
be looked at with some misgivings because it advocates a
sudden and swift change of things. However, incremental-
5
ism, that is, approaching the solution of a problem
deliberately with a plan in mind not to change things
"overnight," but with the idea of experimenting with new
solutions in areas of obvious weakness rather than letting
Robert A. Dahl and Charles E. Lindblom, Politics,
Economics, and Welfare (New York: Harper and Brothers,
1953), pp'. 82-85._________________________________________
the problem ferment or fester. The incremental approach
permits moderate experimentation, and if the experiment
proves to be inadequate, then it can be scrapped or added
to. Hence, the word— increment. Still there is danger in
an incremental approach. For example, the farm subsidy
program has not been satisfactory, and yet it still pre-
6
vails as the “conventional wisdom," to borrow a phrase,
for solving this problem.
Policy failure. The second point is that if a
policy fails time after time, then it is time to try a new
one rather than justify the failures of the old policy.
When the Great Depression caused havoc in the American
system of capitalism, the neoclassicists sputtered and
muttered words to the effect that "it was inevitable as it
was the price of progress." It is needless to say that in
spite of the economic waste and human misery the neo-
classicists were sincere in their beliefs. Still the
argument was lame. The only thing that is "inevitable" is
death (one can avoid or evade taxes and in some eases get
by with it, but not death). If man is not the master of
his fate, then he is not much better off than the contro
versial ape. It would be better to spend our lives in a
Martian zoo under the label of Earth homo sapiens ignor
amus .
^John Kenneth Galbraith, The Affluent Society
(Boston: Houghton Mifflin Company, 1958), pp. T-2G.
Thinking ahead. A third point seems to he that
American economists were not willing to think in terms of
the future. They failed to face up to the problem of de
pression until after the blow fell.
President Hoover did take corrective action. But
the action taken was not sufficient to cheek the worst de
pression this country has ever experienced. The problem
was the degree and timing of corrective action. As one
economist points out:
In spite of various steps which had been taken by
the government, including the creation of the Recon
struction Finance Corporation in January of 1932 and
the Home Loan Bank legislation later in the year, the
financial assistance provided was insufficient to
maintain the degree of recovery which developed in the
latter part of the year.7
The significance of the preceding remarks is that
the prevailing economic opinion as to what to do about a
depression when applied was sadly inadequate. The author
expects to be criticized for taking this position and wel
comes it. The writer is aware that his crities will con
tend that the economy had already hit bottom and was in
the upturn of the recovery phase when Roosevelt assumed
the reigns of the government. This point is conceded.
However, the author maintains that the second dip in 1933
would have happened with or without Hoover or FDR in the
White House. It appears to illustrate the contention made
n
Maurice W. Lee, Economic Fluctuations (Homewood,
Illinois: Richard D. Irwin, Ine., 1953), p. 229.
by Keynes that private initiative and government spending
during both the Hoover and FDR administrations were not
enough to give the economy the recovery strength it needed,
It makes no difference what political party or
economic power group is at fault if one is inclined to
blame a particular group for a depression (some people
have to have a scapegoat in order to preserve their pet
theory). In this country excluding a political party such
blame falls on three major economic power groups, that is,
it is either the fault of business, labor unions, or the
farmer (the politician gets the ax quite often). Actually
it would be better to blame the whole human race for mak
ing a mess of its political and economic life, and in the
light of recent world events its extermination would un
doubtedly end all problems. Nevertheless, it would be
offensive to some timid souls.
There is little sense in wblamingM the Republicans,
the Democrats, the unions, business, and the farmers for
our economic troubles. To do so is only to avoid the real
problems we face and to shirk our responsibilities as the
highest form of life on this planet. The responsibility
is, of course, to use our minds (which elevates us one
noteh above the ape), to solve the problems we make. When
it was evident that big business was guilty of certain
abuses near the turn of the century, legislative action
was taken to remedy this. It is not the purpose of this
14
paper to discuss the success in enforcing the anti-trust
laws. The point is that we tools: legislative action.
New problems have stemmed from this legislation as
should be expected. There is neither a perfect law nor
perfect enforcement of a law. We must continually study
the effects of each law we make.
The time has now come to legislate in the area of
union abuses and. farm abuses. Not with the purpose of
destroying these economic groups, but with the purpose of
correcting their abuses and instilling in them a much
needed sense of national responsibility.
There is no hard and fast rule in the field of
economics (the economics of capitalism) that says that
economists cannot prevent depression and eontrol inflation
and at the same time maintain its basic political and
economic freedoms. It has been proved that we can have
depression and inflation. It has yet to be proved that we
cannot prevent depression and control inflation. Further
more, we have not really tried. We seem to prefer to say
it cannot be done. Can it?
Economic planning and econoxaic policy. The fourth
point is that if we are going to attempt to solve the
problems that arise in the American system of capitalism,
we must revise our thinking about economic planning.
Economic planning precedes economic poliey. There can be
no successful policy making without first planning which
means the analysis of problems and conditions. It should
be pointed out that economic planning does not mean one
has to either accept comprehensive planning (public enter
prise) or no planning (free enterprise with absolutely no
government regulation or control). Economic planning ana
lyzes goals, that is, what are the goals? It analyzes
techniques and conditions. As to techniques the question
is asked what is the best way to do something: As to con
ditions the question that must be answered is what are the
economic, institutional, and legal conditions that influ
ence the techniques and goals.
In order to prevent depression and to control in
flation we must adopt a policy which means the first step
is to plan each step. Prom planning comas the "package”
which may be called the policy. We cannot flounder along
in a haphazard manner and expect, as we so commonly hear
it said, the "economy” to straighten itself out. We hear
talk about the "economy” as if it were a singular person
with some magical powers to perform miracles. This
ridiculous talk about "leaving the economy alone as it will
straighten itself out in due time" is nothing more than
psuedo-religious thinking. It is talk that quite frequent
ly stems from radio-TV commentators, newspaper editorial
writers, self-styled economists, politicians and a few
trained economists. It is a kind of thinking that implies
that a divine being of some sort will somewhere along the
i 16
line throw a switch and things will get better or worse
and for man to tamper in any way would be comparable to
worshipping before a golden calf— it would be anathema.
This is self-delusion and a crime towards humanity that
some believe is God-created. It should be pointed out to
this group that the Meeonomy, , is composed of people as are
the institutions that are a part of the economy. Since
the economy is composed of people, then it behooves them
to adopt a poliey that will be beneficial to all of them
or nearly all of them over any period of time. The poliey
in this country obviously must be democratic, and it must
protect the freedom of the people. And this means that an
organized economic policy should be developed by a politic
al party and presented to the voters for approval. Gan it
be done?
Encourage and appraise new ideas. The fifth and
final point is that we have given some indication that we
are willing to try some of the Keynesian policies to pre
vent depression. Which is to say, we have adopted a poliey
to some extent to solve the problems of depression. Mow
are we ready to tackle the problem of inflation? If we
are, then we must act now and we must encourage and
appraise new ideas that are presented as a solution to the
problem of inflation before we find ourselves as we did
during the Great Depression, that is, void of any adequate
solutions._and ■without, a -de.f inlJLe__an_d__wfil.l-Q,r.ganlz.ed_p.oIf.cy_.
--------------------------------------------------- "IT
What was readily frowned upon and sometimes vehemently
condemned as a solution to the Great Depression is now
more or less accepted as the right tools to use or'at the
least tools that are better than nothing (some die hard—
they still exercise their prerogative to criticize— but
they have yet to offer a solution—-a solution, that is,
wrhieh takes cognizance of the fact that certain economic
power groups are here to stay, and that any solution must
inelude them, not exterminate them). The significance of
our unfortunate experience during the Great Depression was
that we had not prepared ourselves for such a mess. In
stead we talked about the threat of depression. We prog
nosticated its coming. We wrung our hands and pulled our
hair (assuming one has hair), yet we did nothing system-
jatically. We had no organized policy to prevent a depres
sion, and if and when the crash came, we had no definite
poliey in mind as to how we would shorten the trough and
bring on revival.
If we are faced with what some choose to eall
"secular inflation," then it is time we start preparing a
policy to remedy the evils of inflation. We need to con
centrate on what we can do to encourage economic expan
sion, and at the same time combat the inflationary by
products of expansion. If we continue to just talk abat
the "evils of inflation" and take the attitude that
nothing can be done to control inflation as we did about
18
depression, we most certainly will wreck the American
economy again. This time it is highly doubtful that we
shall get another chance to prove the American economic
system can cope with inflation and depression. Can we
solve the problem of inflation? Our whole future as a
leader in the free world depends on whether we can solve
the problem now before it reaches the point of catastrophe.
Once the lid blows off, it will be too late. To solve
this problem, of course, means we must take a new look at
inflation. We must admit there is a way to solve this
problem short of bringing on deliberately planned reces
sions and depressions and short of a totally planned
economy. If we cannot find new ideas and develop a policy,
we can say in the Army vernacular— we've had it.
Facing a problem means utilizing all that has been
written and said before about that problem. That is the
starting point. The next step is to set definitions and
objectives in order. Then it is necessary to study each
8
problem as if it were a diamond in the rough. Each cut
8
The Air Foree formula, taught to all students who
pass through the Air University at Maxwell Air Foree Base
near Montgomery, Alabama, is as follows: (l) identify the
f
roblem; 1 ( 2 ) gather data; (3) list the possible solutions;
4) test the possible solutions; (5) select the best solu
tion; and (6) put the solution into action. This six-
step formula is a guide to solving problems. It is, how
ever, only a guide. See for reference Charles A. Cerami,
"This Approach Speeds Problem Saving," Nation's Business,
VL (May, 195?), pp. 86-87, 92-93.
on this diamond must "be determined in advance or it will
be marred. So must we determine the ramifications of a
proposed policy. A new approach if necessary.
V. STATEMENT OF ORGANIZATION INTO CHAPTERS
The second chapter is a brief discussion of why it
is believed that the problem of inflation poses as a
greater crisis for the entire nation rather than just for
a few economic groups. Some attention will be given to
the impact of the economics of the late John Maynard Keynes
during the Great Depression when this nation faced and
solved another crisis. In Chapter III the problem of
inflation is discussed and definitions are set in order.
Four types of inflation are emphasized and then a brief
review of other types is presented. Chapter IV is a re
view of wage theories deemed necessary before the pros and
eons of a national wage policy can be sincerely discussed.
Following this brief examination we then shall be
in a more favorable position to study the problem of in
flation in relation to a national wage policy in peace
time. It is in Chapter V that the component parts of such
a policy are set down; who supports such a policy; how
such a policy would be inaugurated; its implications; and
its political feasibility. Chapter VI is a discussion of
other anti-inflation plans that have gained recognition
and some recently. The final chapter is believed to be an
20
answer to the problem of inflation that is being experi
enced in the United States which requires a new outlook in
our economic and political thinking.
VI. STATEMENT OP THE SOURCES OF DATA
•
The sources of data are limited to those available
at Boheney Library at the University of Southern Cali
fornia, the library at Long Beach City College, the Los
Angeles Public Library, and the Long Beach Public Library,
and those personally obtained from the private library of
members of the thesis committee as well as from private
organizations. When possible, primary sources are used,
yet, the difficulty of securing some materials is ever
present and in one of two instances the writer relied on
secondary sources.
Among the primary sources used are (l) the unpub
lished paper of Dr. Spencer D. Pollard entitled, "Three
Kinds of Inflation"; (2) Dr. Grme W. Phelps* revised
edition of Introduction to Labor Economics, published by
McGraw-Hill; (3) John Maynard Keynes’, The General Theory
of Employment. Interest, and Money published by liarcourt,
Brace and Company; and (4) John Kenneth Galbraith's
American Capitalism, revised edition; and The Affluent
Society, both published by Houghton Mifflin Company.
The author's interest in this subject was sparked
at the University of Southern California in a seminar of
21
contemporary economic thought. While reading and discus
sing Keynes1 General Theory, it was apparent that he had
allowed room for different kinds of inflation, which he
mentioned, but did not go into any detail about.
Then while in Dr. Pollard’s labor seminar the
spark was fanned into an inferno when he read his unpub
lished paper to his students. At the same time Dr. Orate
W. Phelps’ book was used in this seminar as supplementary
reading. While reading this text, the author came across
his discussion of a national wage policy.
Meanwhile, in Dr. Koy L. Garis’ seminar on mone
tary theory, the discussions kept returning to the problem
of inflation and how to solve it. And the interesting
thing about these discussions about inflation was that it
took precedence in the minds of students at the very time
the nation was plagued by a recession. It seemed to indi
cate that the students were concerned about the recession,
but not worried because it was generally accepted that the
nation would weather it with the economic tools available.
It was during these discussions that the idea of
basic inflation began to develop.
The importance of the two books written by Dr•
Galbraith was that the author of this paper accepted the
concept of countervailing power, but rejected Galbraith’s
contention that it would not work during a period of in
flation. It became necessary to prove why Galbraith was
22
wrong. It is ‘ believed that the Pollardian thesis is the
answer to Galbraith1s pessimism.
The author is araeh indebted to these men mentioned
above and is thankful for the help and assistance from the
others that he has quoted in this paper and has given the
proper recognition in the footnotes and in the bibli
ography.
No one man or woman who seeks to convey ideas can
be absolutely certain that he or she has arrived at cer
tain conclusions independently so that the work can be
called entirely original. Much of the following work is
eclectic. Still it is believed that the theory of basic
inflation is original.
CHAPTER IX
STANDING AT THE CROSSROAD
It is sincerely hoped that the reader will find
this paper an enlightening work on a perturbing and cora-
plicated problem that as yet has not been solved. If and
when this problem is solved, it is obvious, or it should
he, that new and more complicated problems will stem from
the one just solved. This can be expected and it means
that again the economist will be called upon to exercise
his brain and utilize his training to make American
capitalism continue to function in spite of some of its
weaknesses. And all too often, it might be added, these
"weaknesses" are over-exaggerated.
I. NO PERFECT ECONOMIC SYSTEM
There is no escape from the fact that there is no
perfect economic system, and it is highly unlikely that
there will ever be one. This is not pessimism. It is
only the price of living in an imperfect world composed of
When the author first began this work he was ex
tremely confident and filled with the zeal of a young man
seeking answers. Although he can hardly be classified as
an authority on this subject he has done considerable
reading and pondering on it. Now he finds himself almost
eatatonic before his typewriter. It is with the courage
of a rabbit that he proceeds beyond this point as he is
again reminded of what his limited education has taught
him. That is, what he really knows is infinitesimal in
comparison to what he does not know. It is only the roar
of a shotgun that keeps this rabbit running.
24
imperfect people. This is reality. A reality that some
men refuse to face.
The author does not believe that an economic system
such as our own is by any means archaic. And that is not
to say that he opposes change. Furthermore, he does not
believe that a person's political beliefs are unrelated to
one's economic beliefs as will be apparent in this paper.
If an individual believes in a republican form of
government that is founded on and guided by a constitution
such as we have in our own federation, it is utterly im-
2
possible to maintain that a welfare state is compatible,
with the basic freedoms we now enjoy.
If the American people so decide that eertain
freedoms never existed or are no longer important and it
is best to lay them aside for economic efficiency, then
let both sides be presented so that they may make the de
cisions. Unfortunately, both sides are not presented, and
that is even true in our institutions of higher learning.
o
The term "welfare state" is ambiguous. If one is:
discussing a welfare state he is required to state more
than he is "fer it," or "agin' it." At present, there is
a new school of welfare economics not to be confused with
Hobson's school or Arrow's school. It is the school head
ed tacitly by Professor Alvin H. Hansen whose chief
spokesman it seems is now John Kenneth Galbraith of Har
vard. Their chief tenets are (l) big government spending,
and (2) a broad redistribution of income. It is unfair to
limit this school to these two points, but then this school
has not clearly defined its own position and it is about
time that it does so. Their philosophy appears to be that
the government should spend more and more on more and more
projects because the government knows best what is needed.
Tha redistribution takes place through taxes andis spent
25
Instead, all too often only one side is presented under
the cloak of "academic freedom," or in the name of "ob-
j eetivity."
If a man has his political and economic beliefs,
let him speak out with boldness and state what they are.
Let him avoid the labels and cliches, both old and new.
Let him put his cards on the table.
If a man believes democratic socialism is the best
answer to man’s political and economic future, let him be
intellectually honest about it. One did not have to agree
with the late Seorge Bernard Shaw and 6. D. H. Cole, but
one has to admire them for their integrity. It is strange
that in these United States our political and economic
spectrum is almost sans the democratic socialist. If he
exists, where is he and why does he not stand up to be
counted? It is the author’s belief that there are only a
handful in our society that consciously know that they are
democratic socialists. Yet there are numerous liberals,
of which the author includes himself (with some reserve-
tions), who find themselves at the crossroad of another
oh government programs. The theory is "for the best in
terest of all." The author does not object to welfare
programs in our economic system. What he objects to is
certain kinds and the degree that they are pursued. The
author hopes this sheds some light on his position.
Things are not all black or all white. The auth
or finds himself aligned with the so-called liberals on
certain political and economic ideas and then on others he
finds himself with conservatives. This, of course, points
up to the author the danger of labels and the overuse of
26
crisis. In the 30 *s it was the Great Depression and the
problem of unemployment that presented a similar crossroad.
Some men ventured down the road of communism or faseism as
a solution to the problem. Some knowingly, and others un
knowingly followed such a path.
The other road was the road the nation followed,
4
first led by the outgoing president, Herbert Hoover,
later by President Roosevelt, and still later by the ideas
of an economist— John Maynard Keynes.
II. KEYNES: A FRIEND OF PRIVATE ENTERPRISE
Far too often it is forgotten in the heat of argu
ment that Keynes was an advocate or the friend of private
enterprise. And it is necessary to this paper that his
program be set down briefly as it ties in with the analysis
that underlies the main thesis. It is like a current deep
beneath the current on the surface of the water.
It will be remembered that it was Keynes1 belief
that:
"isms,n but then we must communicate in spite of the con
fusion that these terms, labels, etc., tend to cause.
^In all fairness to the former President it should
be pointed out that in the heat of argument he is a much
maligned person and unjustly so. It grieves the author to
hear professors and other learned men speak so unkindly of
a great patriot. He fears our youth have a distorted
picture of an honest statesman.
27
The State will have to exereise a guiding influ
ence on the propensity to consume partly through its
scheme of taxation, partly by fixing the rate of
interest, and partly, perhaps, in other ways. Further
more it seems unlikely that the influence of hanking
policy on the rate of interest will he sufficient hy
itself to determine an optimum rate of investment. I
conceive, therefore, that a somewhat comprehensive
socialization of investment will prove the only means
of securing an approximation to full employment; though
this need not exclude all manner of compromises and of
devices hy which public authority will cooperate with
private initiative. But beyond this no obvious ease
is made out for a system of State Socialism which
would embrace most of the economic life of the commu
nity. It is not the ownership of the instruments of
production which it is important for the State to
assume. If the State is able to determine the aggre
gate amount of resources devoted to augmenting the
instruments and the basic rate of reward to those who
own them, it will have accomplished all that is neces
sary. Moreover, the necessary measures of socializa
tion can be introduced gradually and without a break
in the general traditions of society.5
Now it should be pointed out here that the demo-
eratic socialists agree with Keynes. But they insist that
he did not go far enough with his proposals. They contend
that Keynes’ policy will operate sufficiently to eure some
of the symptoms, but not the causes of instability and
6
unemployment under a capitalistic system. We shall re
turn to them in a moment but first we must return to the
i
liberals that we left at the crossroad in 1930.
The liberals found themselves faced with relying
5
John Maynard Keynes, The General Theory of Em
ployment, Interest, and Money (New York: Hareourt, Brace
and Company^ 1936j, p. 378.
A
William Ebenstein, Introduction to Political
Philosophy (New York: Rinehart and Company, Inc., 1952),
p. 219 ._________________________________: _________________
28
upon their historical enemy— the state— to hail them out
of the nation's economic mess in a manner that was com
patible with their economic and political system; turning
their cheek and rolling with the punch, or treking down the
road of communism and fascism.
They chose the former path with ”the conviction
that men can manage their affairs of government and soci-
7
ety hy applying thought and intelligence.” And, it might
he added, the democratic socialist trudged a short dis
tance behind the mass exodus down this new road welcoming
the revolution in economic thought, hut muttering that
such a policy would only offset the weaknesses and defici
encies of capitalism. Economic stability could not be
achieved by the palliatives of Keynes alone. In the end,
”the state— through publicly responsible agencies-— will
have to own and eonduet a large part of the apparatus of
O
production.” Still the democratic socialist trudged on
whistling softly, ”Time On Hands.”
III. THE LIBERAL AT THE CROSSROAD
How again we are at a crossroad and the liberal is
faeed with another great problem and a decision. This
time it is the other side of the coin which reads depres
sion on one side and inflation on the other. The side
7Ibid. 8Ihid., p. 253.
29
that is up is inflation.
We are at the crossroad that the late Joseph
Schumpeter alluded to before his death. Again we are in
need for some fresh and invigorating thinking on how we
can maintain our capitalistic system without pulling it
apart piece toy piece. Schumpeter’s thesis is that:
A state of perennial inflationary pressures will
have, qualitatively, all the effects of weakening the
social framework of society and of strengthening sub
versive tendencies (however carefully wrapped up in
’ ’liberal” phrases) that every competent economist is
in the habit of attributing to more spectacular in
flations. But this is not all. In addition some of
the standard remedies for such situations will not
mitigate, and may even aggravate, the present one. It
seems to me that this is not being fully understood,9
And he goes on to conclude:
Perennial inflationary pressure can play an im
portant part in the eventual conquest of the private-
enterprise system toy the bureaucracy— the resultant
frictions and deadlocks being attributed to private
enterprise and used as arguments for further restric
tions and regulations. I do not say that any group
follows this line with conscious purpose, but purposes
are never wholly conscious. A situation may well
emerge in which most people will consider complete
planning as the smallest of possible evils. They will
certainly not call it Socialism or Communism, and pre
sumably they will make some exceptions for the farmer,
the retailer and the small producer; under these cir
cumstances, capitalism (the free-enterprise system) as
a scheme of values, a way of life, and a civilization
may not be worth bothering about.io
How the author accepts Schumpeter’s thesis with a
9
Joseph Schumpeter, Capitalism, Socialism and
Democracy (third edition; New York: Harper Brothers and
Publishers, 1950), p. 422.
1QIbid., p. 424.
3©
reservation. And it is this reservation that will develop
in this paper which stems from the Pollardian thesis that
there is a particular type of inflation that is a hy-prod~
net of economic expansion that can he controlled, is not
11
severe, and should not he stopped.
Indeed, the problem of inflation looms as the
crossroad of another crisis. The time to make a decision
is now.
The significance of this chapter and its relation
to the chapters that will follow is that it is believed
that in order to determine what path this economic system
should follow a distinction must he made between the
different kinds of inflation.
By failing to make this distinction, it eould mean
an unwise selection of the route we choose to follow.
It is believed that the selection of a national
wage policy supervised hy the federal government, or any
state or local government, would most certainly he a step
towards democratic socialism.
The problem of inflation, it is believed, poses a
greater problem than the deeline of the purchasing power
of certain economic groups in the American economy and this
should he kept in mind throughout the reading of this paper!
^Spencer Pollard, t t Three Kinds of Inflation” (A
Talk Presented to the Faculty Club of the University of
Southern California, March 12, 1958), pp. 1-2.
CHAPTEE III
THE PROBLEM OF INFLATION1
In the past year the tempo of the discussion ahout
inflation has stepped up considerably. The term inflation
is tossed around in everyday conversations and one is not
at a loss to find an article about this nagging problem in
the newspapers and leading magazines. Such also is the
case for radio and TV.
It is such an important problem that our nation's
legislators^ both in the House and the Senate, are giving
considerable time and effort to its study through investi
gative committees. But what really points up its wide
spread importance is the faet that just recently the van
guards' of our society— the comedians— have inserted the
topic of inflation in their acts.
For example, on a TV show, comedian Milton Berle
quipped, "Inflation means that your money today won't buy
as much as it would have during the depression when you
didn't have any." With this remark, and it is probably
the best one-shot definition that we have about inflation,
Uncle Milty put our economy in focus. Although his wise
crack was short and to the point, still it leaves much
unanswered.
32
I. INFLATION: WHAT IS IT?
The first question to he asked in a discussion of
this nature is, of course, what is inflation? Answering
this is not as simple as it seems at first glance.
There is a definition of inflation, then, on the
other hand, there are definitions of inflation. This is
an important point to hear in mind. It is because of this
fact that there are definitions and a definition that much
confusion has arisen among economists, legislators, policy
makers, and laymen. Why? The reason will he given later.
A definition. First it is necessary to look at
the common definition of inflation as set down hy the one
and only Noah Webster. He defines inflation as a:
Bisproportionate and relatively sharp and sudden
increase in the amount of money or credit, or both,
relative to the amount of . . . business. Such in
crease may come as a result of unexpected additions to
the supply of precious metals, as in the period follow
ing the Spanish conquest in Central and South America
or the period following the opening of large new gold
deposits; or it may come in times of business activity
by expansion of credit through the banks; or it may
come in times of financial difficulty by governmental
provisions for conversion into standard metallic money
on demand. In accordance with the quantity theory of
money, inflation also produces a rise in the price
level .1
This definition might be called the basic defin
ition of inflation as it will be seen as we proceed that
Webster^ International Dictionary (second edi
tion; Tol. I; Springfield, Mass.: 6. & C. Merriam Company,
publishers, 1940), p. 1275.______________________________
33
other definitions are based on this one. The confusion
that arises from the basic definition stems from the fact
that there is a tendency not to be specific as to what
kind of inflation is being discussed. For example, it is
apparent from the definition by Webster that there are
different kinds of inflation. However, this is quite, com
monly overlooked by many who write about or discuss the
problems of inflation. Runaway inflation is eonfused with
creeping inflation (seeular) and cost-push inflation. If
one finds himself in a dither over inflation, it is because
some economists and others have not been intellectually
honest (or just lazy thinkers). Hence it is important for
anyone discussing or writing about inflation to first state
what kind of inflation he is talking about. Once this is
done there is little room for confusion. Whether one
agrees with what is said is, of course, another matter.
With this in mind let us now turn to some defi
nitions of inflation that are built on the basic defi
nitions. For instance, one economist defines inflation as
follows:
Inflation may be defined as a change in the volume
or velocity, or both, or currency-dollar and deposit-
dollar, in relation to the supply of available goods,
which tends to reduce the purchasing power of the
dollar.2
2
William H. Kiekhofer, Economic Principles. Prob
lems and Policies (third edition; New York: D. Appleton-
Gentury Company, Inc., 1946), p. 603.
34
It is apparent from this definition that the economist has
simplified the basic definition. He goes on to say that
^inflation is of two principle types. The one is crude and
the other is subtle. The first is inflation of currency,
the second is inflation of bank credit.”
It can be seen from this definition that the econo
mist believes there are only two types of inflation, and
that both kinds are caused by the monetary policy of a
nation, or better yet by the monetary authorities who
initiate and carry out the policy. It can be detected
quite readily that this definition is too rigid, that is to
say, it does not give any inkling as to what is the cause
of inflation. It seems implicit in this definition that
the economist means to say that the cause of inflation is
due to any increase in the supply of money (currency or
bank credit) in excess of the available goods. An increase
in the supply of money in excess of available goods no
doubt contributes to inflation, but the cause of inflation
does not lie with the increase of the money supply. It
goes deeper than that, and we shall see why in a moment.
Now Keynes takes a different position in regard to
inflation. He makes a distinction between what he calls
”true" inflation and ”semi” inflation. This is what he has
to say on this matter.
3 Ibid
35
When full employment is reached, any attempt to in
crease investment still further will set up a tendency
in raoney-prices to rise without limit, irrespective of
the marginal propensity to consume: i_. e. we shall have
reached a state of true inflation.*
He says that true inflation takes place:
When a further increase in the quantity of effec
tive demand produces no further increase in output and
entirely spends itself on an increase in the cost-unit
fully proportionate to the increase in effective de
mand, we have reached a condition which might he appro
priately designated as one of true inflation. Up to
this point the effect of monetary expansion is entirely
a question of degree, and there is no previous point at
which we can draw a definite line and declare that con
ditions of inflation have set in. Every previous in
crease in the quantity of money is likely, in so far as
it increases effective demand, to spend itself partly
in increasing the cost-unit and partly in increasing
out pu t.5
However, he points out that:
. . . in addition to the final critical point of
full employment at which money-wages have to rise, in
response to an increasing effective demand in terms of
money, fully in proportion to the rise in the prices
of wage-goods, we have a succession of earlier semi-
critical points at which an increasing effective demand
tends to raise money-wages though not fully in propor
tion to the rise of wage-goods; and similarly in the
ease of a decreasing effective demand. . . . These
points of discontinuity are determined hy the psy
chology of the workers and hy the policies of employers
and trade unions. . . . These points, where a further
increase of effective demand in terms of money is
liable to cause discontinuous rise in the wage-unit,
might he deemed, from a certain point of view, to he
F
ositions of semi-inflation, having some analogy
though a very imperfect one) to the absolute inflation
which ensues on an increase in effective demand in
circumstances of full employment.6
4
John Maynard Keynes, The General Theory of Employ
ment. Interest, and Money (New York: Harcourt, Braee and
Company^ 1936), p* 119.
5Ibid.. p. 303. 6Ibid.. pp. 301-302._____________
36
So we see that Keynes has acknowledged that there
are complicating factors that will cause inflation in the
economy before it reaches the point of true inflation
which is coincident with full employment. Hence, we see
in Keynes' statement room for more than one kind of infla
tion. The area that leaves room for a distinction of
different kinds of inflation is what he referred to as
semi-inflation. Others have referred to this as "mild'* or
"moderate" inflation. Is this kind of inflation dangerous,
and should it be stopped? We shall see.
First it should be pointed out that there are many
more definitions of inflation. For as: many economic text
books that exist (and there are a considerable number) we
have a somewhat different definition. In many instances
they are modifications of the two just cited. That is to
say, it is generally based on either the idea that the
problem of inflation lies primarily with an increase in
the supply of money in excess of available goods or with
". . .an excess of effective demand above the level needed
7
for full employment. ...” It would hardly seem neces
sary to ramble on page after page setting down these other
definitions and commenting on each one individually. Since
some people will object to this unscientific approach, the
author is willing to coneede to his critics that such is
7
Dudley Dillard, The Economics of John Maynard
Keynes (New York: Frentice-Hall, Inc., 1948), p. 255.______
37
the ease and then move on. Some things have to be done in
this lifetime.
Why did the author insist that the cause of infla
tion does not lie with an increase of the money supply in
excess of the available goods? For this reason. An in
crease in the money supply does not give a reason as to
SHE the increase took place. Obviously there must be a
reason for increasing the supply of money. One would
hardly say that the monetary authorities just arbitrarily
increase the amount of money without a cause. If this be
the case, then the cause of inflation can be linked to the
cause that brings on an increase in the supply of money.
Therefore, the increase in the money supply becomes a con
tributing or propagating factor in inflation rather than
the initiating factor. This calls for a revision in our
thinking about inflation.
One economist, who reveals some fresh thinking in
this respect, defines inflation as:
. . . simply a general and sustained rise in
prices, including the prices involved in the cost of
living. The way to begin to think about such a rise
. . . is to distinguish three kinds of inflation. It
is important to do this because each kind has its own
cause, its own course of events and its own conse
quences. And what will be helpful as a policy in one
ease will be harmful in another. I shall call the
three kinds of inflation, respectively, the cost-push
type, the demand-pull type, and the expansion-pressure
type.8
O
Spencer Pollard, "Three Kinds of Inflation" (A
Talk Presented to the Faculty Club of the University of
Southern California, March 12, 1958), pp. 1-2.
38
It can readily be seen in this approach to infla
tion that the previous definitions although they acknowl
edge the existence of more than one type of inflation did
not, however, examine the causes, ramifications, or even
suggest that there possibly might be more than one policy
to be used in a period of inflation.
According to this recent viewpoint, the cost-push
type of inflation is caused by a rise in production costs
due to successful union demands for an increase in wages.
The demand-pull type is caused by government spending
through the creation and use of new money. The expansion-
pressure type is caused by the spending of money for expan
sion (new plants and machinery) by industrialists.9 Let us^
take a closer look, at these three kinds of inflation. Then
the author will add a fourth kind that he will call basic
inflation.
Cost-push inflation. When there is a cost-push
type of inflation which is caused by an increase in pro
duction costs due to unions pressing for and receiving an
increase in wages, this either puts a squeeze on the firm's
profits or else the firm seeks to shift the incidence of
the added cost to the consumer by boosting the price. In
either case whether the firm absorbs the increases eosts or
passes them* on to the consumer, the "squeeze play" is on
9Ibid.. p. 2. ______________________
39
and the national economy is headed for trouble. Eventually
the consumer will slack off and then stop buying durable
goods and items of luxury. This causes a downturn in the
production of these goods and in time a cut-back in pro
duction as these firms seek to reduce production costs.
The labor foree is hit with unemployment in this
area of production and eut-backs snowball into additional
eut-baeks until the unions are forced to discontinue their
demands for increased wages. In addition, it is the gen
eral policy of the Federal Reserve Banks and the commer
cial banks to tighten up on eredit which helps to bring an
end to this kind of inflation. It is felt by some econo
mists, businessmen, and politicians that this is what
happened to bring on the recent recession. However, the
writer feels that such is not the case, and it will be
pointed out later why.
At this point it should be mentioned in order to
avoid a misunderstanding that it is common knowledge that
during inflation wages and prices generally rise together.
This is true even in the ease of the three kinds of infla
tion that we are discussing. In other words, the author
does not want to leave the reader with the impression that
wages and prices only rise in the cost-push type of infla
tion. The significant feature about the rise of wages and
prices in the cost-push inflation is the eventual squeeze
on profits or on consumer prices which causes the economic
40
recession.***
In a recent book written by Dr. Harold G. Moulton
entitled, Can Inflation Be Controlled?** and reviewed by
George Shea of The Wall Street Journal, just such a po
sition has been taken. That is, that the inflation we
have in the United States today is a cost-push inflation.
It is Moulton*s contention that continued increases
in wages have forced up prices and this is the crux of the
inflation problem. He takes care to point out that it is
not the quantity of gold, either in production or in exist
ence, that has any long-range effect on priees. Also he
rejects the concept of the quantity theory of money and
maintains that the velocity of money, or its turnover,
does not cause the fluctuations of prices. And, further
more, he criticizes the income theory (which makes the
assumption that the price level is determined wholly by
the demand level) on the grounds that such a theory ne
glects the money costs of production as a factor of im
portance. Its importance is its affect on prices of com—
12
modifies entering the market.
His thesis is, assuming full employment:
*°Ibid., p. 3.
**Harold G. Moulton, Gan Inflation Be Controlled?
(Washington, D. C.: Anderson Kramer Associates^ 19 58)'^
302 pp.
■to
George Shea, WA *Cost-Push' Theory of Inflation,”
The Wall Street Journal, LX (March 3, 1959), p. 10.________
41
; . . that money income arises solely out of
transactions is which someone pays for something—
goods or services. Whether the payment is made hy
private enterprise or hy Government makes no differ
ence, assuming prices are the same. Nor does whether
the Government pays with a deficit or with tax money
make any difference in the amount of national money
income arising out of the transactions, as long as
their number and their prices remain unchanged.*3
Moulton presents a different argument than is
generally presented in support of the cost-push theory.
Demand-pull inflation. When the economy is in
volved in a demand-pull inflation, which is due to heavy
government spending made possible hy operating on excess
ive ammounts of credit or hy printing new money, unions
are again in a position to ask for and receive wage in
creases with little resistance. The situation is like
what Keynes called the point of “full employment0 or
t t true° inflation, that is, the point where there is no
additional increase in the supply of goods.
The significant feature of the demand-pull infla
tion is that business firms jack up the price in order to
increase their profits while at the same time consumers go
out on the town in a wild spending spree in order to ex
change the money that they are fast losing confidence in
for goods and services. On every corner money changers
spring up, and the wheel-harrow business booms. This is
11
George Shea, “The Outlook,° The Wall Street
Journal, LX (March 16, 1959), p. 1.
____ . , _.. 42
quite correctly referred to as hyperinflation or runaway
14.
inflation.
The German inflation of 1919-1923 is a prime ex
ample of this demand-pull type of inflation. The rise of
the price level was so rapid that the velocity of money
reached fantastic intensities of exchange.
In Germany, it is reported that the price level
rose 150 billion times during this period from 1919-
1 5
1923. From January, 1923, to November of the same year
the ratio of the United States dollar to the German mark
climbed from 8,695 marks to #1 to 6,666,666,666,667 marks
16
to fl in United States money.
17
Keynes reported in his book, Monetary Reform.
that:
In Vienna, during the period of collapse, mushroom
exchange banks sprang up at every street corner, where
you could change your krone into Zurich frares within
a few minutes of receiving them, and so avoid the risk
of loss during the time it would take you to reach
your usual bank. It became a seasonable witticism to
allege that a prudent man at a cafe ordering a bock of
beer should order a second bock at the same time, even
14
Pollard, op. cit., p. 4.
* 1 K
Frank B. Graham, Exchange Prices and Production
in Hyper-inflation Germany, 1920-1923 (Princeton, N. J.:
Princeton University Press, 1930), p7 13.
16T. Walter Wallbank and Alastair M. Taylor, Civi
lization Past and Present (third edition; Chicago: Scott,
Foresaian and Company, 1955), p. 416.
*^John Maynard Keynes, Monetary Reform (New York:
Harcourt, Brace and Company, 1924J, pp. viii, 227.
43
at the expense of drinking it tepid, lest the price
should rise meanwhile.18
When a demand-pull inflation gets out of hand, as
it did in Germany following World War I, and as it did in
Hungary and China, prior to their seizure hy the Commu
nists, a nation may heeome a playground for political and
economic radicals.
Unfortunately, this type of inflation is confused
with the other two types hy presumably learned writers and
speakers. There is no reason to object to using this term
if only it is used properly. It only serves to frighten
the pul)lie and cause unnecessary anxiety when such is not
the case. By now it should be apparent why it is so im
portant to define what type of inflation is being dis
cussed so that policy-making or recommendations for con
trolling or perpetuating an inflationary period can best
be understood. Misunderstandings occur in the field of
economics (as well as in other fields of interest) because
there is little done to clarify the issues by putting
definitions in order before argument begins. A wise and
white-haired economist known by the author continually
stresses this fact to his students. Set definitions in
order to avoid needless arguments.
Are we having a demand-pull inflation? At present
the facts do not support such a contention. In a recent
18Ibid.. p. 51.
44
study the idea of a demand-pull inflation was refuted.
This study listed the following as signs that suggested
inflation fears. They are:
Many people with money are shifting to stocks,
real estate, other things to hedge against inflation.
Stock prices have heen bid up to levels out of
line with profits and dividends.
Farm land sells at record prices, often bearing
little relation to what land can earn.
Bonds and other fixed-income securities are weak
on the market, recently have sold at the lowest prices
in years.
Gold has been flowing out of the United States at
a near—record rate— 2,2 billion dollars' worth in a
year.19
Then the following signs are listed to indicate confidence
in the dollar:
Among the masses of ordinary people, the dollar
remains a solid standard of value— to be sought and
saved.
Savings accounts in banks are up. Accounts in
savings and loan associations are growing at a record
clip.
Savings bonds are selling better than last year,
and cash—ins of these bonds are down 12 per cent.
Life insurance, offering no hedge against infla
tion, remains a favorite form of savings— 65 billions'
worth sold in 1958.
Living costs in the United States are holding just
about steady— hardly any change sinee last spring.
Prices of many commodities— raw materials— have
been weak recently.^9
19*»Is the Dollar in Trouble'?" U. S. News and World
Report. XLV (December 26, 1958), p. 57. ~
20Ibid._________________ ■ ___________
„------------------------------------------- - 45
The conclusion was;
. . . a rather widespread fear that, over the
years ahead, United States faces more inflation.
Still, among the great majority of the world’s people,
the dollar remains the most-sought-after currency. In
terms of buying power, the dollar held its own about
as well as most other currencies, and better than
many. Any ’flight from the dollar' is not likely to
get going on a major scale in this period.21
If these indicators or signs are generally accept
able, then it does appear that demand-pull inflation, at
least for the time being, can be ruled out as a description
of inflation in the United States.
Expansion-pressure inflation. The third kind of
inflation is the expansion-pressure type. This is due to
what some economists believe is the ’ ’normal” path for a
dynamic economy, such as our own, to follow, that is, if
any economy is going to grow, then it must continually ex
pand rather than attempt to level off or ’ ’plateau.” These
economists contend that this type of inflation is not
detrimental to the nation's economy. It is sometimes re
ferred to as “creeping inflation,” “secular inflation,” or
“mild inflation.” What takes place?
Expansion-pressure inflation is a normal reaction
to any period of economic expansion. Please note the
emphasis placed on the words normal reaction. Rather than
refer to it as a "normal reaction” let us henceforth con
sider this kind of inflation as a component part or an
21Ibid.
46
accompaniment to expansion. During the early stage of an
expansionary period (what is usually referred to as the
recovery phase of a business cycle— however, let,us think
of a two-phase cycle, that is, expansion and contraction)
there is in the strictest sense inflation, not theoretical
inflation. That is to say, wages, prices, production,
interest rates, employment, etc. tend to rise while the
value of money (purchasing power) tends to decline. It is
during this stage that Keynesian theory and poliey has had
its greatest impact. It should he pointed out that labor
22
unions are able to enforce their countervailing power
more successfully at this stage than at any other time
(note the number of strikes during the late thirties and
following the second World War).
At some point the eeonoiy reaches the end of the
recovery phase and moves into the expansionary phase of
the business cycle. A sound generalization seems to be
that such a point would be at that point where employment
has reached a high level, that is, a point where unemploy
ment is of the seasonal and job-changing kind. Which is
to say that all employable resources that want to be
employed are capable of finding employment and involuntary
employment has been eliminated.
22
For the definition see John Kenneth Galbraith,
American Capitalism: The Concept of Countervailing Power
(Boston? Houghton Mifflin Company, 1952), pp. 118, 143-144.
When the waste of depression has been swept aside,
and it is imperative that business firms and industry ex
pand rather than just replace worn out and obsolete
machinery, equipment, and plants, then expansion-pressure
inflation takes place. And this happens when great amounts
of new investment (real investment) take place in the area
of capital goods industries. Let us see what happens
and then observe what role the unions have in this type of
inflation.
First of all, those industrialists who decide to
expand must bid for the factors of production. It has al
ready been pointed out that all employable resources are
running at a high level, so it is obvious that the buyers
of the factor of production must bid up the price in order
to set their plans into motion. It is during a situation
like this that the unions and management, according to
Professor Galbraith, relinquish their respective powers.
However, what he fails to recognize is the possibility
24
that the power roles may change rather than disintegrate.
As expansion takes place, wages increase, profits
climb, demand for more durable goods and luxury items
23Pollard, o£. cit. , , p. 6.
24rSorae labor unions may now be in a position to en
force "original” power (in this situation "original"
would be a misnomer . .. let us say instead primary
power), and some business firms may be placed in the
position of relying on countervailing power.
48
mounts, and in turn the rest of the economy benefits by
the pressure of expansion. It is believed by some econo
mists that a contributing factor that helps in stimulating
expansion is labor union demands for higher wages. The
validity of this argument will be appraised in the con
clusion of this paper.
It is obvious that as the expansion is talcing
place the amount (volume) of purchasing power has increas
ed and to some extent the value of the money has declined.
This decline has an effect that is greatly felt by those
in fixed-ineome groups, bondholders, and rentiers. At
present this presents a major problem in the American
economy, and it is used as a strong argument against those
who support the expansion-pressure type of inflation.
This problem will be discussed a little later in this
chapter.
Basic inflation. Now, for the fourth kind of in
flation let us return to what the author said previously
under the heading of expansion-pressure inflation. The
reader will remember that the author used the term theo
retical inflation and it was used to indicate the commonly
accepted definition among economists.
It is acknowledged that some economists, maybe
many, will disagree with the statement made that during
the early stage of an expansionary period (recovery phase
of the generally accepted four-phase business cycle) there
is in the strictest sense inflation and this is to be dis
tinguished from theoretical inflation.
The term theoretical inflation is used to dis
tinguish between what is usually recognized as inflation
as defined by Webster's International Dictionary, and what
is not recognized as inflation during the recovery phase
of a eyele. The author calls this latter kind basic in
flation. Now it is contended that this basic inflation is
apparent during the upturn of a mild recession, such as
the ones we have recently experienced during 1948-1949,
1953-1954, and the 1958-1959 recessions. But, although
apparent, basic inflation is not recognized for what it is
and that is a by-product of economic expansion.
That is to say, whenever the economy enters the
period of upturn whether from a deep depression or a mild
recession, immediately, but in a gentle and mild manner
wages, prices, and interest rates tend to rise in conjunc
tion with the rise or increase in production and employ
ment while the value of money (purchasing power) tends to
decline. So the point is that as soon as an economy
starts out of a depression (recovery phase) it is feeling
the effeets of inflation, but at a time like this few
people are concerned about its effects (well maybe some)
because they are primarily concerned with recovery and
expansion or regaining what was lost. Hence, there are
50
almost no voices of doom to be heard amidst the joyous
celebrating of recovery. Still the dollar value is de
clining, but at a slower rate of decrease than is later
evident when the economy swings into the expansion or
prosperity phase of the business cycle.
Another main point is that if the recovery period
moves into an expansionary period, which is the point
where employment has reached a high level (only seasonal
and frictional unemployment) and all employable (or most
resources that want to be employed are capable of finding
employment, then the forces at work during the recovery
period most certainly contribute to and add to the infla-
O r
tion that takes plaee in the expansionary period.
So now we see that there is a basic inflation that
is at play in the economy that begins at the point of
upturn in a cycle. On top of this we may have a cost-
push, demand-pull, or both at the same time, or expansion-
pressure inflation. And these are the four main types of
inflation.
II. OTHER TYPES OF INFLATION
Before we turn our attention to the ramifications
of inflation on various groups in our economy, it is
necessary for the sake of fair and impartial research to
25
For an opposite viewpoint see Kiekhofer, loc. cit.
51
acknowledge that there are other types of Inflation as well
as the ones that we have given our attention to. It is
believed by the author that these other kinds are of a
specific type and are not of a general nature and, conse
quently, not of primary importance to our discussion.
This is not to say, however, that these other types of
inflation cannot or will not cause serious repereussions
in the overall economy at any given time or under certain
conditions. The study of these various types would jus
tify a graduate student’s attention for a thesis.
The author has encountered eleven other types of
inflation in his research for this paper. Some are re
lated and some are not. It is conceded that there are
probably more, and if not, there will be as we have not by
any means exhausted the subject for study in the field of
economics. These eleven types that the writer submits for
review and reflection are (l) bottleneck inflation,
( . 2 ) wage inflation, (3 ) demand inflation, (4) cost infla
tion, (5) price inflation, (6) markup inflation,
(7) sellers’ inflation, (8) planned inflation, (9) ”spend-
yourself-rich” inflation, (10) credit inflation, and
(ll) currency inflation.
Bottleneck inflation. The first of these,
bottleneck inflation, comes about as a result of a short
age in any one of several of the factors of production and
resources at any given time. We are quite familiar with
52
this type during wartime or following a war when the change
over in the economy takes place from war demand to consumer
demand, or following a depression. One economist has al
ready aptly stated or defined this type. He says:
When a bottleneck is reached in one line of pro
duction, the price of the item in question tends to
rise sharply, in the absence of price control, even
though other prices are rising gently. In the short
run, supply is inelastic in the sense that output does
not respond immediately to increases in prices. The
increase in demand is diverted into a rise in price
until the output has time to expand to meet the demand.
Increases in priees of this sort are referred to as
’bottleneck inflation.’
’Bottleneck inflation' differs in a fundamental
way from the general Inflation that accompanies full
employment of all other resources. For a given suf
ficient time, bottlenecks can be broken by an increase
in the output of the item in question. . . . The
length of time that must elapse before the bottleneck
is broken will, of course, depend upon technical con
siderations .26
Wage inflation. The second kind is wage inflation,
sometimes referred to as "wage-cost" inflation. The cause
of this kind of inflation is attributed to trade unions
which have forced sellers to increase their prices. The
price rise is caused by the wage increases exacted by the
trade unions beyond the increase of productivity. Now
this type of inflation can (and maybe does) take place in
certain industries or on a regional basis. It should be
apparent that this type can become a eost-push inflation
Oft
Dudley Dillard, The Economics of John Maynard
Keynes (New York: Prentiee-Hall, Inc., 194871 P* 232.
53
27
when it is general throughout the economy.
Professor Lowell E. Gallaway of Colorado State
University has made a study of the wage-push thesis from
1950 to 1957 and concludes that:
If the classical form of the aggregate demand
function for labor is accepted . . . and if it is felt
that the large increases in federal expenditures in the
1950-1957 period were produced by exogenous factors,
the case for wage-push inflation loses much of its
significance. Under these conditions, a more accept
able explanation of the phenomenon of persistent in
flation is one that places its emphasis on pressures
that have tended to increase the aggregate demand for
goods and services in the American e c o n o m y .28
Gallaway contends that a
Serious question may be raised . . . whether this
inflationary pressure was the result of deliberate
policies on the part of the federal government designed
to offset possible unemployment attributable to rising
wage rates. An alternative explanation would be that
these large expenditures /totaled nearly #500 billion
in this period and exceeded receipts by some #17
billion__/ were the result of factors unrelated to the
relationship between moneywage rates and the employment
level: for example, the pressing defense needs of the
period, which accounted for a sizeable portion of the
increase in s p e n d i n g .29
This argument is worth some attention in that it
suggests that possibly there are other factors to consider
27
The Relationship of Prices to Economic Stability
and Growth. Reprinted from Joint Committee Print, October
31, 1958, 85th Congress, Second Session, Washington, D. C.:
American Federation of Labor and Congress of Industrial
Organizations, 1959, p. 19.
28Lowell E. Gallaway, "The Wage-Push Inflation
Thesis, 1950-1957," The American Economic Review, XLVIII
(December, 1958), p. 971.
29Ibid
54
besides wages and priees in a discussion about inflation.
It is fresh thinking about an old problem.
Demand inflation. Demand inflation is akin to
bottleneck inflation, except that priees may be raised by
a producer who is not affected by bottlenecks and takes
advantage of the necessary price rises of other producers
to gain greater profits for himself. That is, if the mar
ket will tolerate his price increase. Generally, this
type of inflation takes place in the period immediately
following a war or as soon as wartime controls are lifted.
30
Cost inflation. Cost inflation is the same
thing as “wage-cost” inflation and as pointed out above if
this type becomes general, then it should be properly re
ferred to as cost-push inflation. It should be pointed
out to the uninitiated that cost inflation is the opposite
of demand inflation. Cost inflation is due to pressure
from the supply side (and from demand if the costs are due
to creating demand) while demand inflation is due to press
ure from the demand side, such as, the pent-up demands of
the consumers following World War II.
Price inflation. The fifth kind is price infla
tion and is attributed to uncalled for increases in prices
30
The Eelationship of Prices to Economic Stability
and Growth, op. cit., p. 7.
55
and is the same as the sixth type.
Markup inflation. The sixth type of inflation is
what Gardner Ackley calls "markup inflation.” According
to Ackley, the cause of this kind may he due to an "exces
sive markup” of either the profit margin or the wage
31
level. In this concept we see the elements of hoth de
mand inflation and cost-wage (or cost) inflation inte
grated.
Sellers* inflation. The seventh type is a concept
of Abha P. Lerner. Dr. Lerner speaks of "sellers* infla
tion” and he contends that such an inflation is caused by
an increase in priee markups. This, of course, is the
same as Ackley's concept with the cause being due to the
32
markup of the producers.
Planned inflation. Planned inflation stems from a
social policy that is supported by "the current popular be
lief that government must intervene to save every individu
al or group that may be in economic difficulty or dis-
33
tress.” This type of inflation is due to an easy-money
policy and government subsidies to support a minimum
standard of living and to perpetuate prosperity. Although
31Ibid., p. 19. 32Ibid.
qq
° William Henry Chamberlin, "Planned Inflation," The
Wall Street Journal. LIX (November 12, 1958), p. 10. [
56
it is a short-run program, it has long-run implications
that are questioned by more conservative individuals who
are no less concerned with our society’s social strata
than those who support this type of inflation.
wSpend-yourself-rich inflation.w The ninth type
of inflation is what may he called "spend-yourself-rieh
inflation." This type is caused hy large deficit spending.
That is, "with large deficit spending the compensating
revenues can he gained from a faster rate of increase of
the gross national product."34 The "scallywag" responsible
for this is, such opponents say, the late Lord Keynes.
A leading critic of the "spend-yourself-rieh"
theory is Yale Brozen, professor of economics at the
Graduate School of Business, University of Chicago. He
lists three points as the moral of experience with infla
tion .
First of all, inflation is not possible and will
not occur without an increasingly quantity of money.
Second, the quantity of money will not increase unless
the Federal Reserve either provides extra money, or
makes it possible for hanks to increase the stock of
money hy providing them with more reserves or by cut
ting required ratios. Third, the Federal Reserve in
creases the stoek of money primarily as a result of
the pressures exerted on it to assist in financing
Governmental deficits and secondarily to assist the
Treasury in refinancing maturing debt when the demand
for funds is strong and the Treasury would have to
offer more attractive interest rates to get the money
34
Raymond Moley, "Spend-Yourself-Rieh Advocates Cre
ate Inflation, Not Prosperity," Los Angeles Times, March
12, 1959, Part III, p. 5.
57
from inflationary sources.
In essence, the only way we are going to avoid
inflation in the future is hy avoiding deficits in
Government budgets.35
Brozen goes on to say that Congress should hold the line
on new Government programs and should even discontinue old
ones. He does not attack military spending as he apparent
ly understands that this type of spending will continue
for some time in spite of what others say to the contrary.
Credit inflation. Another type of inflation is
what is called credit inflation. This type "has specific
reference to price rises that are attributable to an in
crease in the volume of bank deposits and the use of
36
checks. Such an inflation may arise • ’either as a result
of so-called deficit financing by the government through
bank loans and deposits, or through similar financing by
.37
private persons or corporations for speculative purposes.
The influence of this type of inflation "may be
rather narrowly confined to priees in those areas that are
quickening their use of bank deposits to meet some particu
lar demand. . . . «38
38Yale Brozen, "Inflation's Real Roots," The Wall
Street Journal. LX (March 30, 1959), p. 8.
38Thomas L. Kebler, "Inflation," Encyclopaedia
Americana (1943 edition), XV, p. 123a.
37Ibid. 38Ibid.
58
Currency inflation. The eleventh, and final type
of inflation is currency inflation. This inflation “re
lates to such price rises as are attributable to the ex
pansion of the monetary medium (usually in the form of
39
paper) more rapidly than goods can be produced.” The
reaction in this case influences the whole price structure.
This kind of inflation is the same as what has been called
demand-pull inflation.
As pointed out at the beginning of this review of
other types of inflation, this does not by any means cover
the field. But it is believed that if this short resume
serves any purpose at all, it should be to point up the
absolute confusion that has been created by the initiated
and the uninitiated alike on the topic of inflation.
The significant point is that the American people
must ultimately take sides and make a decision on the
question of inflation. And in order to make, at least, a
halfway sensible decision, as it takes no thought to pick
sides, they should have this problem presented in an
orderly and simple manner. By simple manner, the author
does not mean to infer that the answer or solution for
this problem is simple. What he does mean to say is that
emotions are running so high in this present debate that
some of the wildest adjectives are plunked in front of the
39Ibid.
59
word— inflation— and they only serve to perpetuate con
fusion. For example, the writer just recently heard the
phrase— phantom inflation— used in a debate among sup
posedly learned men. Of course, it was never defined, but
then it sounded good and the others picked it up.
In addition to this "word** confusion, businessmen
and labor leaders alike are behaving in true form. Neither
side is guilty of inflation, that is, if guilt has to be
attached to any particular group. Both sides are compiling
statistics like ants store up supplies for the winter
months. It is a frantic race on a treadmill to prove the
other person is to blame.
If this paper serves to clarify the problem and,
in addition, presents the problem in a simple manner (with
out over simplifying), then the writer will feel justly
compensated for his efforts.
III. FIXED-INCOME GROUPS
It is common knowledge that the ones that are the
hardest hit in a period of inflation (cost-push, demand-
pull, and expansion-pressure) and the fixed-ineorae groups.
Let us take a brief glance at some of these people.
Creditor and debtor. There is, first of all, the
creditor who makes loans to debtors (the recipient of the
loan) and charges interest, that is, a reward for lending
the money in addition to the amount borrowed. Once the____
. 60
creditor has made the loan at a stated amount of interest,
he cannot at a later date change the interest rate on that
loan. He takes the chanee that the money he loans will
not have declined in value when it is repaid. That is to
say, he will receive the same amount of money hack (prin
ciple) that he loaned out, hut it will not purchase as
much in goods and services when the loan is repaid as when
he loaned the money. Theoretically, he has lost money.
The debtor, on the other hand, fares much better. He not
only is in a better position to repay the loan, but he re
pays it with money whose purchasing power has less value.
Which is to say, he gives up less in goods and services
40
with prices high than if prices were lower.
Bondholders and pensioners. Another group hurt by
inflation is bondholders. The bondholder is the principal
creditor and is affected in the same way as the creditor
mentioned above. It is interesting to note that the fed
eral government is presently concerned about the unat—
tractiveness of its bonds and the declining interest in
treasury notes.
People who attempt to subsist on private or public
pensions are also adversely affected by inflation. What
happens, in short, is this. Gn a private pension plan
4GKenneth K. Kurihara, Monetary Theory and Public
Policy (New York: W. W. Norton and Company, Inc., 1950),
pp. 53-54.__________________________
61
they pay money with a higher value into the plan than they
ultimately get out of it. The monthly payments that are
considered quite adequate for them to live on at the time
they enter the pension plan are commonly inadequate at the
time they start receiving their monthly ehecks. In many
cases, the amount received is piddling and leaves the older
person frustrated and bittrer and with good reason. In
addition, there are other unattractive ramifications stem
ming from government pensions. For example, the case in
New York State where a 73 year old man saved #1500 from
his #71 a month pension over a period of years and invest
ed in the stock market. When he was indicted as a "crim
inal" by the district attorney, he had increased his #1500
to #23,000.
The state of New York seized his stock and sold
it, as they said, to compensate the Deaprtment of Welfare
as the elderly citizen was not entitled to his paltry #71
a month. The old man's crime was "criminally saving money"
41
in an attempt to hedge against inflation. Our welfare
laws and pension plans are unrealistic and need revising.
The same, of course, can be said about recipients
of insurance policies (all kinds— life, fire, health,
etc.). Also included are bondholders (especially those
who hold government bonds), salaried workers and veterans
43iiobert Wallace, "The Perils of Being Too Thrifty,"
Life, XLVI (Mareh 30, 1959), pp. 47-54.
62
(pensions, compensations, or students).
Without a doubt these people suffer the pangs of
inflation. The sad part about this situation is that
little has been done to alleviate this problem area other
than talk about these "unfortunate people.” However, it
has been proposed by some economists that the fixed-income
42
groups be relieved of this burden by escalation. The
chief argument levied against this proposal is the cost it
would incur. (it should be pointed out a few insurance
companies have already adopted this principle.) However,
the author believes the chief deterrent is not so much the
cost of escalation as it is the prevailing and antiquated
viewpoint about inflation. A viewpoint that is unwarrant
ed because of the failure to distinguish between the
different kinds of inflation.
The author strongly believes that the expansion-
pressure type of inflation is needed to keep the economy
moving forward and upward at the same time. It is also
recognized that there are by-products of this kind of in
flation, specifically, a moderate decline in the value of
money which penalizes those on fixed incomes. So if the
price of economic expansion is this moderate type of in
flation and this in turn penalizes a segment of our econo
my, then we must take steps to remedy this situation. Our
42
Based on the same or a similar principle as the
escalator clauses in wage contracts adopted by the labor
unions.
— ------------------ 63
problem is greater and more complex and calls for solu
tions other than just being for or against inflation.
It has been pointed out that ”the ultimate test
. . . of the desirability or undesirability of inflation
lies in the overall effect of inflation on the economic
43
stability of the nation as a whole.**
The above quotation has direct bearing on our next
topic which comes under the heading of this chapter.
IV. COLLECTIVE BARGAINING OR COLLECTIVE COERCION?
Some economists sincerely believe that one of the
chief propagating factors (the monetary policy being the
initiating factor) to serious inflation is the labor
unions and their continuous demand for higher wages. They
are firmly convinced that if the unions keep up their con
stant "harping** for wage increases and get these increases,
the economy will be plunged into one of the deepest de
pressions this nation has ever had. They insist that any
increase in the supply of money will be primarily sopped
up by the unions at the expense of the rest of the laboring
force and fixed-ineome groups. They tend to reason as
follows.
Collective coercion. These economists point out
that there are only approximately seventeen million union
4^gurihara. loc. cit.
------------------------------------------- 64“
members out of the total of sixty-odd million in the labor
foree. This they say constitutes a minority. But they
point out that the labor unions have become a strong
economic power group, in fact, so strong that it is time to
break up their power, cheek their power, or for the govern
ment to intervene with a national wage policy if the
nation's economy is to be spared from inflation.
So, they reason, it is time to step in and stop
the unions from gaining at the expense of the rest of the
nation as they are a minority group that has failed to
voluntarily exercise a social responsibility as advocated
by Professor John Maurice Clark of Columbia University.
A prominent economist has stated that:
At one time laborers did not have the freedom to
which they were entitled to from unions and to bargain
collectively: and the economic power of those unions
which existed, although important, did not on the whole
menace the economy. But, this situation no longer
obtains. There is abundant evidence that unions today
have too much economic power. When this is the case,
the public interest requires that steps be taken to
reduce it.4^
Consequently, these economists feel that under
inflationary conditions collective bargaining is nothing
more than "collective coercion" (and some believe that this
is the case with the unions all the time). Hence, a stop
44
John Maurice Clark, Economic Institutions and
Human Welfare (New York: Alfred A. Knopf'j 1957), pp. 42
and 70.
45
Edward H. Chamberlin, "The Economic Analysis of
Labor Union Power" (Washington, B.C.: American Enterprises
Association, 1958), p. 46.
65
mast toe put to this development. There are various pro
posals, but the one that we are particularly interested in
is the proposal for a national wage policy.
However, before we move on we should ask certain
questions. First, in the light of what has been said
about expansion-pressure inflation would any proposal to
prevent the unions from pressing for higher wages toe
logical? Second, are these proposals attacking the prob
lem in the right direction, that is to say, do we want to
cripple one group to help another? In other words, is thisj
the only way to solve the problem? Finally, do we not want
to solve this problem as democratically as possible and at
the same time encourage not discourage economic expansion?
The counter argument. Now there is the other side
of the argument, that is, the counter-offensive attack
used toy the unions. It is their chief interest to "prove"
that business is to blame for inflation. Their main argu
ment is that the only reason the union presses for higher
wages is because they know for a "fact" that business is
getting fatter and fatter on everwidening profit margins.
And, according to most union leaders, the union members
are entitled to a part of the big profit margin.
The union leaders contend that when the union de
mands higher wages and gets them, then business, rather
than being contented with a smaller profit margin, jumps
I the price more than is "justified" toy the wage increases.
66
This is the cause of inflation and the only way to remedy
it is for business to he contented with a smaller profit
margin. The businessman counters with the argument that
if his profit margins gets any smaller, he will have to
sell out.
V. CONCLUSIONS
We can see from both arguments that the type of
inflation that both sides have in mind is what is called
cost-push inflation. Now it must be conceded that IF cost-
push inflation is what the American economy is being
plagued by, then BOTH sides are guilty in perpetuating an
inflation that ultimately, but no one knows when, will
lead to a demand-pull type of inflation and then economic
ruin. And if we are experiencing cost-push inflation, then
both business and labor unions must, not just maybe, but
must change their attitudes towards inflation. This in
cludes the farm bloc as well.
When self-interest endangers and supercedes the
national interest, then legislative action is certain to
follow. And if legislative action takes place, then it is
important that the legislators keep in mind that BOTH sides
are guilty.
In a cost-push situation business must make a stand
against wage increases that exceed productivity increases
and at the same time must determine what is the "necessary"
6T
profit margin they need to survive.
Labor unions, on the other hand, must face the
bare, hard facts that the biggest culprits responsible for
unemployment during a eost-push type of inflation are none
other than the labor unions themselves. By pressing for
higher wage increases plus the increases in expensive
fringe benefits, unions force business to seek other sub
stitutes for labor in order to curtail costs. Eight or
wrong, that is when viewed in the social sphere, it is
natural for a man who is in business to make a profit and
to cut his costs wherever the eosts are the greatest.
Henee, we see from this that in a cost-push type of
inflation both sides need to examine their own ideas and
convictions before trying to set their opponent’s house in
order as both houses are made of glass.
Now that we have set definitions in order, examin
ed briefly the problem of inflation and some of its rami
fications, and questioned the validity of both the union
wage policy and the policy of business in a period of in
flation, we may move on to the next chapter wherein we
shall review some wage theories.
CHAPTER IV
A REVIEW OF WAGE THEORIES
The author believes that in order to better under
stand the proposal for a national wage policy in peacetime
it will be necessary to review the various wage theories
that have been taught and advocated by certain schools of
economic thought. One could hardly make a proper analysis
without having first been exposed to these other theories.
In this day and age when so much is going on around us at
such a fast clip, we have a tendency to rely too much on
what the other fellow says without ever questioning his or
her reliability. It will be admitted quite readily that
in the field of physical science the layman is at a great
disadvantage and that one can safely say he or she does not
have the time to study such subjects as physics, chemistry,
and astronomy. However, such an excuse does not hold up
in the area of social sciences (the study of man in rela
tion to man).
A question we shall be asking as we place these
vrage theories under an economic microscope is what are the
advantages and disadvantages of them as tools for a wage
policy.
t
I. THE JUST WAGE
69
One of the oldest known wage theories is the "just
wage" theory. By referring to this theory as the "oldest"
the author does not mean to imply that there could not
have been other wage theories prior to this one. It is
highly prohable that the parable of the laborers in the
vineyard as recorded in the Bible is an earlier wage the
ory, and it could very well be that the biblical remark
that man was to live by the sweat of his brow might be one
of the predecessors to a wage theory. So in order to
avoid an academic argument as to whether the "just wage"
theory is the first of the wage theories let us settle the
issue by saying it will serve us in this paper as the be
ginning .
The "just wage" theory or concept reigned supreme
throughout the Middle Ages until about the time of Adam
Smith’s publication in 1776 of the Wealth of Nations. The
theory was more commonly referred to as the "just price"
and in essence it was as follows. "Whether for the trader
or the craftsman, it was that priee for his wares which
would enable him to maintain himself and his family aeeord-
l
ing to their established position in the community." That
is to say "the social status of the laborer determined his
^Orrae W. Phelps, Introduction to Labor Economics
(second edition; New York: McGraw-Hill Book Company, Inc.,
1955), p. 414. _______ ___
70
standard of living, therefore a "just price" was one which
enabled the maker of the goods to maintain his accustomed
2
standard." Fence, we can see from this that as long as
laborers were willing to accept their social status and
the "just wage" that went with it, then social peace
reigned.
A factor that contributed to this wage theory was
the rigid ant! willing acceptance of social lines. After
all, God had appointed this social position to them.
However, when the method of working gradually
changed under the new freedom that man gained in the latter
days of the medieval era, that is to say, when the worker
began to use someone else's tools and raw materials, the
3
"just wage" was no longer a satisfactory explanation.
Nevertheless, to this day, there are "vestigial remnants
of the just wage in some of the more advanced societies
• • ♦ •
II. SUBSISTENCE WAGE
It was, of course, the Industrial Revolution in
the eighteenth century that stimulated the minds of those
who were interested in the study of business to seek out
2
John W. McConnell, The Basic Teachings of the
Great Economists (New York: Garden City Publishing Co.,
Inc., 1943), pp. 139-140.
^Ibid.. p. 73. ^Phelps. op. cit., p. 415.____
- 71
new economic ideas that were more flexible than what had
come down from the church hierarchy. The man who made the
greatest impact, Adam Smith, has rightly been called the
5
father of political economy. Smith has been, unfortun
ately, presented to the layman as the champion of laissez
faire and, consequently, the enemy of the working popula
tion. Nothing could be further from the truth.
Smith had a keen sense of insight and unknowingly
in some cases laid the foundation for future wage theories.
He can hardly be accused of being an apologist or advocate
laissez faire economics. He recorded what he saw at
work in his time, and yet he occasionally glanced into the
future. It is seldom that a man of this kind comes along,
and it is disturbing to have learned men (presumably) and
laymen pass judgment and condemn him as belonging to the
ages. What did this man achieve?
One writer points out that:
(l) He formulated the labor theory of value.
(2) He pointed out the bargaining advantage enjoyed
by masters over workmen, thereby foreshadowing the
bargain theory of wages of a century later. (3) He
anticipated Ricardo’s subsistence theory. (4) He g
developed a theory to account for wage differentials.
Let us take a look at these four points in the
words of Smith as he wrote them in his monumental book,
Wealth of Nations. As to the labor theory, he said:
5Ibid. 6Ibid.
72
The value of any commodity . . . to the person who
possesses it, and who means not to use or consume it
himself, hut to exchange it for other commodities, is
equal to the quantity of labour which enables him to
purchase or command. Labour, therefore, is the real
measure of the exchangeable value of all commodities.
The real price of every thing, what every thing
really costs to the man who wants to acquire it, is the
toil and trouble of acquiring it. What every thing is
really worth to the man who has acquired it, and who
wants to dispose of it or exchange it for something
else, is the toil and trouble which it can save to him
self, and which it can impose upon other people. What
is bought with money or with goods is purchased by
labour, as much as what we acquire by the toil of our
own body. That money or those goods indeed save us
this toll. They contain the value of a certain quan
tity of labour which we exchange for what is supposed
at the time to contain the value of an equal quantity.
Labour was the first price, the original purchase-money
that was paid for all things.7
Although the labor theory of value has since been
set aside as an inadequate theory by most economic theor
ists, it has, nevertheless, found a haven among the Marx
ists (Marx used this theory to set forth his exploitation
theory) and some other radical socialists.
Smith was aware of the fact that the employer had
an advantage in bargaining over his employee and thus pre
sented one of the early arguments for organized labor to
combat this uneven balance of power. He wrote:
What are the common wages of labour, depends
everywhere upon the contract usually made between those
two parties, whose interests are by no means the same.
7
Adam Smith, An Inquiry Into The Nature And Causes
Of The Wealth Of Nations (Vol. X of The Harvard Classics,
ed. Charles W. Eliot. 50 vols.; New York: P. F. Collier
and Son, 1909), p. 36.
73
The workmen desire to get as mueh, the masters give as
little as possible. The former are disposed to com
bine in order to raise, the latter in order to lower
the wages of labour.
It is not, however, difficult to foresee which of
the two parties must, upon all ordinary occasions,
have the advantage in the dispute, and force the other
into compliance with their terms. The masters, being
fewer in number, can combine mueh more easily. . .
In regard to the subsistence theory of wages,
Smith appears to have accepted such a theory, however he
9
did not go into any detail or attempt to develop it, and
he leaves the reader with the impression that he was not
entirely satisfied with this idea. On this subject he
wrot e:
But though in disputes with their workmen, masters
must generally have the advantage, there is however a
certain rate below which it seems impossible to reduce
for any considerable time, the ordinary wages even of
the lowest species of labour.
A man must always live by his work, and his wages
must at least be sufficient to maintain him. They
must even upon most occasions be somewhat more; other
wise it would be impossible for him to bring up a
family, and the race of such workmen could not last
beyond the first generation.
It is the fourth point wherein Smith made his
greatest contribution to wage theory. That is the analysis
he made of the cause of wage differentials. He enumerated
five principle circumstances that aecount for the differ
ence in some wages that are used even today as a basis for
^Ibid.. p. 70. ^McConnell, loc. eit.
in
Smith, op. cit., pp. 71-72.
— ' To
wage and salary classification.1' 1
There are variations in the statement of the sub
sistence wage theory, specifically, as it was stated by
David Ricardo, Thomas Malthas, and Ferdinand Lassalle.
Boiled down it is as follows:
. . . Wages tend to equal what the worker needs to
maintain a bare subsistence level of living. Accord
ing to this theory, wage temporarily higher than the
cost of subsistence will result in an increase in the
number of workers; competition will then reduce wages
to the subsistence level. Wages less than the cost of
subsistence will reduce the number of workers; compe
tition will then eventually advance the wages to the
subsistence level.12
This theory was supposedly formulated by Lassalle,
an early leader in the German socialist movement during
the latter half of the nineteenth century, and he called
this the iron law of wages. It is sometimes called the
brazen law of wages and more commonly the subsistence
13
theory of wages.
Maithus based his theory of wages oh his theory of
population as set down in his Bssay of Population. It
was a supply and demand thesis which spoke out for a
slow-up in marriages in order to decrease the supply of
wage earners, and consequently, raise the standard of
wages. He pointed out that the level of subsistence set
^Phelps, oj3. cit., p. 416.
12Harold S'. Sloan and Arnold J. Zurcher, A Dietion-
arv of Economics (third edition; Hew York: Barnes and
Noble, Inc., 1953), p. 17?.
13 im a.__________________________________________
_ _ _ _ 75
the wage level, and that the level of subsistence was
14
governed by custom.
Ricardo, on the other hand, restated what Malthus
said but he was mainly concerned with a general wage level
15
in the long run. His contribution to the subsistence
theory was the idea of a natural wage and a market wage.
and he switched the general theory of value to a theory of
wages. The "natural wage" was that wage which permitted
the laborers to subsist and reproduce its race without a
change, whereas the "market wage" was "the price whieh
really paid for it /produet_J7, from the natural operation
16
of the proportion of the supply to the demand."
The chief criticism levied at the subsistence wage
other than the humanitarian arguments is that in Western
Europe and the United States the theory has no empirical
17
validity and, in addition, this theory preeluded the
possibility of long periods of general unemployment effect
ing the major portions of an entire economy and all the
18
factors of production at once.
1 A
McConnell, op. cit., p. 74.
1
Phelps, oj>. eit., p. 417.
"^William A. Scott, The Development of Economics
(New York: B. Appleton-Century Company, Inc., 1933), p7
117.
17David McCord Wright (ed.), The Impact of the Union
(New York: Harcourt, Brace and Company, Ine.,*195lTJ p.
315.
*®Mauriee W. Lee, Economic Fluctuations (Homewood,
Illinois: Richard D. Irwin. Inc.. 1955). p. 281.___________
. : _ _ . 76~
In spite of its weaknesses the subsistence theory-
still has some following and some believe it may be better
applied to the total world situation.
III. THE EXPLOITATION THEORY
It should be mentioned in passing that out of
Smith’s labor theory of value Karl Marx established his
theory of labor exploitation. In capsule form it is as
follows:
The value of a commodity . . . was determined by
the amount of labor used in its production. If this
was the case (and Marx agreed that it was), then any
part of the return withheld (profits, for example) was
a surplus appropriated by the capitalist, and the
result was exploitation of the workingman. Marx denied
any productive contribution on the part of capital,
holding that it is simple labor value withheld from
its rightful owners.19
This theory has little following in the United
States so it is of little importance to as in our dis
cussion of a national wage policy. However, it is neces-
20
sary to be cognizant of this theory.
IV. THE WAGE-FUND THEORY
John Stuart Mill formulated a theory of wages that
compliments rather than replaces the subsistence theory.
It was suggested by Adam Smith when he hinted that there
19
Phelps, oj», cit., p. 419.
20
For an excellent summary of Marxian economics see
George N. Halm, Economic Systems; A Comparative Analysis
(Rinehart and Company, Inc., 1957), pp. 135-180.___________
77
might possibly be a store of funds available out of which
wages could be paid. This was called the wage-fund theory
21
or the wage-fund and it stressed the short run approach.
Mill contended that:
. . . to the effect that wages depend upon the re
lationship that exists at any particular time between
the number of workers and the quantity of capital
employed for the payment of wages; the only way wages
can be increased, therefore, is to reduce the number of
workers or to increase the amount of capital used for
the payment of w a g e s .22
The wage-fund theory had an important bearing upon
the relation of labor unions and wage legislation in that
neither could do much more than shift money—wages from one
wage group to another as ”. . .no absolute increase in the
23
total wages paid was possible."
There is some truth in this theory in that wages
are in part paid out of capital, however, the chief criti
cism is that actually the so-called fund is really
". . . a matter of the employer’s discretion as to how much
24
he would provide for wages."
Economist Paul A. Samuelson has pointed out that:
Just as the subsistence theory was a special theory
of the supply curve of labor, the wage fund doctrine
was a special theory of the demand curve for labor.
To explain wage rates by the wage bill is to put
21
McConnell, op. cit. t p. 76.
22
Sloan and Zureher, op. cit., p. 338.
22McConnell, loc. cit. 24Ibid.. p. 77.
78
off an answer and to raise the problem of what it is
that determines the wage hill.25
V. THE RESIDUAL CLAIMANT THEORY
In 1862, William Stanley Jevons first stated the
"residual claimant” theory of wages, however, the theory
is sometimes attributed to Prancis A. Walker who twenty
26
years later made an analysis of the theory.
Simply stated it is the deduction of rent, inter
est, and profits from portions of the product. What is
27
left over goes to labor as wages, that is, the residue.
Whereas the wage-fund theory stressed the quantity of
capital on hand as the key determinant of wages, this
theory stressed that the amount of the wage-fund was deter
mined by the product of industry. Obviously such a wage
theory displeased labor and labor sympathizers. They
*
charged that such an approach was ”harsh” and ”unfair” and,
furthermore, they pointed out that in many cases the
laborer was paid during the period of production and not
2 8
afterwards. Exit another wage theory.
VI. THE MARGINAL-PRODUCTIVITY THEORY
Now we turn to a theory that is "the oldest, the
25Wright, op. cit., pp. 318, 319.
26McConnell, loc. cit. 27Ibid.
2^Phelps, op. cit., pp. 418-419.____________________
79
best known, and the most widely taught of the dominant wage
29
theories of the twentieth century." The conception of
this theory can be traced to the incomparable Adam Smith
who suggested that the produce of labor was the wages of
labor. However, Johann Heinrich von Thunen gave the theory
its first full treatment. Still it remained for John Bates
Clark to make an analysis of it and then become probably
its greatest supporter.**®
The theory in brief is as follows:
. . . Wages tend to equal the value of the product
that would be lost if one less worker were employed.
An employer, it is asserted, cannot afford to pay a
worker more than the value of the additional product
produced because of that worker. If that amount is
acceptable to the worker, he may be employed. And all
workers, according to the theory, being interchange
able, the amount paid to the marginal worker will
determine the wages of all the workers.31
Almost immediately we can detect some of the glar
ing errors of this theory as it relies too much on imprac
tical assumptions. First, there is the assumption that
perfect competition exists. It does not. Second, it
assumes the complete mobility of labor which is not an
accurate picture of American economy. Third, full employ
ment among the workers engaged in any kind of work is
OO
assumed. Fourth, a perfect knowledge of the market is
quite naturally assumed (on the basis of the theory), but
such is not the case. And last, but most important today,
29Ibid., p. 423. 30McConnell, ojd. cit.. p. 79.
n 1 32
Sloan and Zueher, op. cit., p. 199. Ibid.____
80
33
it assumes that labor unions are nonexistent. All of the
above assumptions point to what one would like to see take
place, but unfortunately does not take place. Any theory
that does not take into consideration the "real world" must
be set aside for one that does. If the marginal-produet-
ivity theory has any value at all maybe it is as a mental
exercise for undergraduate and graduate students of eco
nomics. Outside of this the beautiful symmetry of this
theory as a part of a total theory of distribution and
price is mueh like the first look at the shapely office
girl. It is breath taking. However, when you see her on
the beach in her bikini bathing suit without her girdle and
other accessories— ah, the world is full of disillusion-
ments, but, nevertheless, we should try to face reality.
VII. THE BARGAIN THEORY
When we begin to trace the origin of this theory we
are again amazed to find that Adam Smith had his finger in
the pie. Although he did not develop the bargain theory,
it was implied in the Wealth of Nations as was pointed out
on page 72. The seed was planted and remained dormant
until John Davidson in 1898 revealed his dissatisfaction
with the previous theories and pointed out that there were
a variety of factors that influenced wages, but not all
equally or consistently. In 1938, Maurice Dobb took the
o q
McConnell, loc. cit. _________ _
_ — _ ai-
same position. Both men pointed out that the several
claimants (rent, interest, profit, and lahor) competed for
a larger chunk of the total product. In addition, they
contended that there were minimum and maximum limits for
the bargain. The ceiling is the point beyond which the
employer would be forced out of business, and the floor
beyond which the laborer will not agree to work. In be
tween these two limiting points there are many factors that
34
will determine at what level an agreement will be made.
Sidney and Beatrice Webb presented a monumental
study on trade unions in England in the early 1900s. The
book, Industrial Democracy, took issue with the marginal-
produetivity theory because it refused to admit compe
tition among the factors of production, but only between
employers for the sale of their goods. Furthermore, they
pointed out that it did not matter whether the employer
was a humanitarian, farsighted, or intelligent as the ”hig-
gling of the market” would tend to make him take the ad
vantage he had over the laboring force. Such action was
necessary because of his disadvantage to the wholesaler who
is in turn in an awkward bargaining position with the re-
35
tailer in some cases. (For a further development of the
’ ’higgling of the market” one should read John K. Gal
braith’s American Capitalism; A Concept of Countervailing
34Ibid., p. 78.
„ 35Phelps. on. cit.. pp. 433-434.____________________
82
Power.)
The strength of the bargaining theory of wages
lies in the weakness of the marginal-productivity theory.
The theory, of course, relies on certain major assumptions
and has been stated as follows:
That wages, hours, and working conditions are
largely a matter of the relative bargaining strength
of the two sides; that without organization and con
certed aetion there will be a tendency toward undesir
able, if not the worst possible, conditions for the
workers; that no adequate safeguard is found in the
operation of the factors at work in the unorganized
trade; that there is a flexible, changeable situation
and that by means of organized effort positive improve
ment can be secured in wages, hours, and other import
ant details of the labor contract and in their adminis
tration. 36
During the early 1930s the bargain theory gained
momentum as well as attention especially in regards to a
short-run approach to wages. Although it picked up a con
siderable number of adherents and advocates, it has not
been able to avoid some thought-stimulating questions about
its validity. For example, contrary to what these who sub
scribe to this theory say in regards to the employer want
ing to lower the wages of all his employees when he takes
37
on new workers, the employer generally raises wages.
Furthermore, it has been criticized as being "opportunis
tic” at the expense of other wage groups, lacking in a
38
long-run approach, and laeking in efficiency.
36
H. A. Millis and B. A. Montgomery, Organized Labor
(New York: MCGraw-Hill Book Company, Inc., 1945), p. 356.
37Phelps, 0£. cit., p. 435. 38Ibid., pp. 436-437.
83
One thing is certain about the bargain theory and
that is it has, or at least it should have, made the pro
ponents of the marginal-productivity theory more cognizant
of the fact that their theory is defunct, and a new theory
is needed. If they reject this theory and realize their
theory is unrealistic, it is time they conjure up a new one
instead of living in the past.
VIII. THE KJRCHASING-P0WER THEORY
One of the recent arrivals in the area of wage
theory is the purehasing-power theory. It can probably be
traced further back than we shall go, but for the sake of
brevity it can be said with some accuracy that it can be
traced to John A. Hobson, an underconsumptionist, who be
lieved among other things that the inequality of income-
39
distribution was a cause of underconsumption.
As yet it has not been fully developed. It is
occasionally referred to as the Keynesian wage poliey or
the flexible wage poliey. However, none of these are
satisfactory as a true theory of wages.
It is important to note that Keynes' General Theory
took issue with the prevailing theory (marginal-productiv
ity theory) that money-wages should be cut during a reces-
40
sion to prevent a depression. Keynes, and not in defense
^Wright, oj>. cit.. p. 332. ^ Ibid.
_ - . 84
as is commonly reported, took a dim view of cutting raoney-
wages because he noted that labor unions (in England) were
the first to resist such action. He pointed out that since
uhions were unwilling to take a wage reduction, then it was
unrealistic to assume that the unions were nonexistent and
attempt to cut money-wages. Although he objected to money-
wage reductions, he did not, on the other hand, advocate
higher money-wage rates. In fact, he preferred to deal
with the problem of wages indirectly, that is to say, his
main coneern was with interest rates, expectations of
profit, income distribution, effective demand, money
41
supply, monetary standards and stock speculation.
There is a significant difference between the
followers of the purchasing—power theory and those who
accept Keynes' inflexible wage poliey that is too often
overlooked. It is this. According to the diagrams that
are drawn to explain the General Theory, that is, the dia
grams that show effective demand dependent upon consumption
and investment, one can easily be led to believe that
Keynes believed that consumption was an equal determinant
of effective demand. He did not. He maintained throughout
the General Theory that investment was the key determinant
and that when this was subnormal and private investment
could not meet the challenge, then the government should
41Pillard, op. cit., pp. 320-321.
85
step in with public investment. Without going into a long
discussion and review of the General Theory in this paper,
the author will encourage the reader to do this for him
self.
Now the neoelassicists maintain that a decrease in
money-wages tends to encourage investment. Keynes dis
agreed. However, those who support the purchasing-power
theory appear to part with Keynes with regard to consump
tion as a key determinant of effective demand. Keynes
would concentrate on the investment side of the diagram,
whereas the purchasing-power theorists give both equal
weight. They maintain that an increase in money-wages will
tend to increase consumption, and the multiplier will
cause magnification of this increase to result in an in
crease in consumption and force or prod industry into
making new investments in order to increase productivity
or seek new products.
The general idea of the purchasing-power theory is
to increase the amount of purchasing power in order to
create and preserve prosperity for everyone. This is not
the Keynesian attitude toward wages as we shall see. This
theory is commonly attacked on the same grounds as the
bargain theory, and, in addition, it is severely criti
cized as being hyperinflationary and extremely dangerous.
It should be pointed out that the author’s pre
sentation of the purehasing-power theory may not be exactly
,86
as others who insist they are advocates of it may have
stated the theory. Since this theory has not yet been
clearly stated, the author felt that it was permissible
to state his own interpretation of the theory.
IX. THE CONTRACTUAL WAGE THEORY
The contractual wage theory is the integration of
the subsistence, marginal productivity, and bargain theory
of wages.
The contractual wage lies somewhere between raini-
mum (subsistence) and maximum (marginal productivity)
wages and is the result of collective bargaining. The
employee wants a wage as close to the ceiling or maximum
wage as possible and the employer wants the wage set as
close to the floor or the minimum as possible. In this
type of bargaining the employee is on a fifty-fifty basis
with the employer.
The actual wage (what is received)is the result of
the contractual wage (collective bargaining).
The chief difference between this theory and the
bargain theory is that in the former emphasis is placed
not on just the interests of labor but business as well.
It attempts to see both sides and does not place business
in the role of villain as is too often done.
X. WANTED: A WAGE THEORY
87
What sort of general conclusion can we draw from
this brief review of wage theories? Well, it seems safe
to say that each one has failed to take into consideration
the total picture of the national economy except possibly
the contractual theory and, in addition, all have failed
to face reality in that they may eliminate certain prob
lems, but they also create new ones. When they create new
problems or when new problems arise, they make no effort
to bring their theory up to date.
The recent theories, from the marginal-productivity
theory to the present, have concentrated mainly on what
wages should be in a recession or depression. None of then
have, however, faced up to the hard facts of inflation and
this includes the contractual theory. The most negligent
in this respect have been the bargaining and purchasing-
power theories both of which indicate a willingness to
accept or tolerate inflation rather than depression. On
the other hand, the marginal-productivity theory has indi
cated a willingness to accept recession periodically rather
than perpetuate inflation whether controlled or not.
It should be obvious then that what we need is a
wage theory that is applicable to the problems of today,
that is to say, a wage theory that not only combats de
pression, but one that will help control a specific type
of inflation (expansion-pressure) which is necessary for
— , -------------------------------------------------------------------------------------------------------------------------------------------------------------8 8 -
the continuous growth of this nation. The contractual
wage theory is a step in the right direction, hut it fails
to take into consideration expansion-pressure inflation.
CHAPTER V
THE PROBLEM IN RELATION TO A NATIONAL WAGE POLICY
In the preceding chapter we made a brief review of
wage theories. It is the author's contention that there
is a definite need for a new wage theory, that is, one
that takes into account not only depression but inflation.
As we know the wage theories we just looked at concentrated
on two things in general. First, a wage that will permit
the worker to earn enough to barely hang on to life and
maybe to marry and bring new life into the world to carry
on the family name. Not a happy outlook to say the least.
Second, a wage that will prevent the worker from asking
"too TOch,” that is, a wage that will keep the economy in
equilibrium. To keep things "normal.”
The two recent wage theories (bargain and purchas
ing power) are the ones that have attempted to change this
gloomy outlook. They seek to put no limit on the amount of
wages a worker can get. Such a philosophy is believed by
some to be highly inflationary and dangerous for the whole
economy, and the corrective measures must be taken now to
prevent an economic catastrophe. The contractual wage
theory sees both sides but is mum about inflation. Some
rely upon the past wage theories as the corrective meas
ures. Recently, there have been a handful of economists
who have sought to correct this movement through a uniform
— . gQ-
wage policy commonly called a national wage poliey. It is
not uncommon today to see this term "pop up" in discussions
on how to control inflation. Let us see what it is all
ahout, and just what has been proposed.
I. WHY A NATIONAL WAGE POLICY
The chief reason for advocating a national wage
poliey in peacetime grew out of America's experience with
inflation following World War I wherein little was done to
control inflation during the war years. When the United
States entered World War II, an effort was made to prevent
a war-induced inflation from reaping havoc with the nation
al economy during and following the war. Without going
into a lengthy resume of the problems that arose during
the second World War and what was done to combat them, the
author will only touch the high points that have a direct
bearing on our topic.
It is common knowledge to even the initiated econo
mists that during a war wages, profits, and prices rise
rapidly when there are not controls on them. Many goods
are diverted from the market place to feed the war machine.
Shortages occur quickly among certain factors of produc
tion as bidding takes place for them. The main source of
economic instability is the rapid increase in government
spending. Inflation sets in.
Fiscal policy is a natural tool to combat and
_ _ _ _ _ _ _ 91-
check war inflation, that is to say, a heavy tax program
helps siphon off the increased supply of money that flows
into the private economy. However, higher taxes are not
politically feasible although wise and just. In addition,
the government must borrow more money to pay for the cost
of war. The Treasury must borrow from the banks and at
the same time sell bonds. If the government wants to hold
down the cost of borrowing, then it hopes to keep the in
terest on the bonds at a low rate. In order to do this in
the American economy this means the monetary authorities
must adopt an easy-money policy and support government
bonds in the open market. The result is that the monetary
officials cannot implement a monetary policy that will
help to curtail inflation. Rather it feeds it. Hence,
there is a lack of a fiscal and monetary policy to combat
inflation. This is what happened to the United States
during World War II.
In order to take up the slack left by an inadequate
fiscal and monetary policy the government stepped in with
direct controls to curb inflation. However, and it should
be mentioned here, these direct controls are not aggregate
economy controls as are fiscal and monetary controls.
They are a supplement to and not a substitute for monetary
and fiscal policy.*
*Mauriee W. Lee, Economic Fluctuations (Homewood,
Illinois: Richard D. Irwln^ Inc., 1955), p.493.
- . 92'
Since we are primarily concerned with wages, we
shall not go into the other kinds of controls although they
are all related and interdependent.
When price controls are installed, then wage con
trols usually follow or are installed at the same time.
The two compliment each other. When wage controls are put
into operation, then problems begin to develop. One
economies writer says that:
In general, as of the point at which wages are
frozen no further increases in wage rates will be per
mitted, except to correct cases of speeial hardship.
But the definition of speeial hardship raises numerous
questions. . . . One of the major questions has to do
with the issue of wage increases to offset increases
in the cost of living. It may be contended that wages
should not be increased for such a reason, exeept in
the case of particular industries or occupations where
wages are abnormally low. On the other hand, it may
be contended that an increase in cost of living repre
sents a failure to control prices and a breach of
equities between producers and wage earners.2
Another problem or question that arises with wage
controls is what is really to be frozen. Generally, the
policy is to freeze straight-time average hourly pay. By
doing this the total wage income is permitted to increase
as extra hours and overtime are worked, and at the same
3
time the pay rate remains the same.
«
This then, is a very general picture of a national
wage poliey during wartime, and it is only to point out
that such a policy is no stranger to the American economy.
2Ibid., p. 501. 3Ibid.. p. 502
93
It has, however, never been implemented during peacetime
although it has been proposed as far back as the mid 30fe.
The Keynesian wage policy. The reader will remem
ber that the author touched briefly on what Keynes had to
say about inflation and full employment earlier in this
paper. He made a distinction between what he ealled true
inflation and semi-inflation, and he recognized that the
latter type came about because of complicating factors that
set in before full employment was reached. In the General
Theory he stressed the importance of a national wage policy
as well as a stable money wage level in the short run and
4
in the long run a rising wage level. He wrote:
. . . I am now of the opinion that the maintenance
of a stable general level of raoney-wages is, on a bal
ance of considerations, the most advisable policy for
a closed system; whilst the same conclusion will hold
good for an open system, provided that equilibrium with
the rest of the world can be secured by means of fluc
tuating exchanges. There are advantages in some degree
of flexibility in the wages of particular industries so
as to expedite transfers from those which are relative
ly declining to those which are relatively expanding.
But the money-wage level as a whole should be main
tained as stable as possible, at any rate in the short
period. ...
Thus with a rigid wage poliey the stability of
prices will be bound up in the short period with the
avoidance of fluctuations in employment. In the long
period ... we are still left with the choice between
a poliey of allowing prices to fall slowly with the
progress of technique and equipment whilst keeping
wages stable, or of allowing wages to rise slowly
4
Qrme W. Phelps, Introduction to Labor Economics
(second edition; New York: McGraw-Hill Book Company, Inc.,
1955), p. 439.
. 9¥"
whilst keeping prices stable. On the whole my prefer
ence is for the latter alternative, on account of the
fact that it is easier with an expectation of higher
wages in future to keep the actual level of employment
within a given range of full employment than with an
expectation of lower wages in future, and on account
also of the social advantages of gradually diminishing
the burden of debt, the greater ease of adjustment
from decaying to growing industries, and the psycho
logical encouragement likely to be felt from a modern
tendency for money-wages to increase.5
Although Keynes mentioned the need for a national
wage policy, he did not develop this idea beyond what is
written above. As he was primarily concerned with de
pression and how to avoid it he said w. . .it would lead
me beyond the scope of my present purpose to develop in
detail the arguments on either side.” So, for a further
development of a national wage policy as well as the argu
ments for or against it, we must turn to other sources.
In all fairness to Keynes it should be pointed out that if
he had lived (he died in 1946) during the postwar period
up until the present, it is highly probable that he would
have turned his attention to solving the problems of in
flation with regard to ”the economic soeiety in which we
*7
actually live. ...” It is, of course, purely an opin
ion that he would have done so.
5
John Maynard Keynes, The General Theory of Em
ployment, Interest, and Money (New York: Harcourt, Brace
and Company^ 1936), pp. 270-271
6Ibid. 7Ibid.. p. 3. ______________
. : 95
II. A NATIONAL WAGE POLICY IN PEACETIME
There are two basic approaches in originating a
national wage policy. The first approach is based on co-
8
operation and the second on supervision.
A cooperative national wage policy. A cooperative
national wage poliey is somewhat idealistic in that it re
quires that both labor and industry (producers) voluntarily
show a social responsibility for curtailing inflation. In
other words, labor and management would take it upon them
selves to establish a national wage poliey in order to
prevent wage increases from exceeding productivity as well
as prevent sectional wage bargaining from causing a wage-
priee spiral (a cost-push type of inflation). On the
other hand, it could be a eollusive action (convention)
that could be extremely inflationary and detrimental.
Professor John T. Dunlop says that such a coopera
tive national wage policy as the latter is a possibility
because:
We have reached the stage where a limited number
of key bargains effectively influence the whole wage
structure of the American economy. . . . It would be
a mistake to presume that labor organizations alone
had brought us from a condition of isolated and inde
pendent labor markets to the present condition in which
a few bargains are decisive to the whole wage level.
Frequently the fact and location of price leadership
determines the key wage bargain. The traditions of
industries and localities or dominant personalities
Q
Phelps, op. cit., p. 439.
96
frequently establish the order in which firms wish to
make any wage ehanges. Individual business firms are
reluctant to make wage ehanges until recognized leaders
have made their decisions.
There are thus a limited number of strategic and
decisive points of wage determination in our system
which effectively condition, within narrow limits, the
whole structure and level of wage and salary rates. .
• • This fact creates the possibility that labor and
management in this country in the years ahead may de
velop a national wage policy. It creates the danger
that these key bargains may contribute to unwarranted
and inflationary wage increases throughout the system.^
If by unwarranted Dunlop means a cost-push type of
inflation, then by all means he is right about his misgiv
ings. However, if the type of inflation is due to expan-
sion-pressure, then there is reason to question his alarm.
Obviously a cooperative national wage policy primarily for
coercive purposes, that is, irresponsible wage demands,
such as Dunlop sees possible would do little if anything
to control even expansion-pressure inflation from becoming
a cost-push inflation. However, if the wage demands are
aimed at expansion and there is the possibility of expan
sion, then it cannot be called irresponsible. This leads
us to consider another kind of cooperative national wage
policy as suggested by Sir William H. Beveridge.
Although Beveridge's plan is primarily for England,
o
John T. Dunlop, "American Wage Determination: The
Trend and Its Significance," paper read to the Chamber of
Commerce of the United States, Economic Institute on Wage
Determination and the Economics of Liberalism, January 11,
1947, as quoted from Phelps, p. 440.
97
it could toe transferred to this country without many
changes. In England, as in the United States, the chief
concern of those who seek to maintain a full—employment
economy , (or near full employment) during peacetime is col
lective "bargaining. It is worth noting what he wrote on
this subjeet. (The author has made some interpolations.)
The problem of how wages should be determined
under conditions of full employment is more important
and more difficult. ...
The right of wage earners to combine for the pur
pose of negotiating wages, hours, and conditions of
work is generally regarded as an essential British
liberty /a.% present in this country this "liberty" is
being challenged as not liberty but license for rob-
ber^/; the tradition that they should bargain seetion-
ally, each craft and trade for itself, is old and
strong. . . . Particular wage demands which what em
ployers are able to pay with their existing prices and
which force a raising of prices, may bring gains to
the workers of the industry concerned, but they will
do so at the expense of all other workers whose real
wages fall owing to the rise in prices. The other
workers will naturally try to restore the position, by
putting forward demands of their own. There is real
danger that sectional wage bargaining, pursued without
regard to its effeets upon prices, may lead to a vici
ous spiral of inflation, with money wages chasing
prices and without any gain in real wages for the
working class as a whole.1°
He goes on to point out the danger of inflation to
the fixed—income groups as well as to a full—employment
economy. In a speech in London on October 20, 1956, Lord
Beveridge had this to say:
. . . MOst of my working life was spent in Uni
versity service. When I left that service to become a
politician in 1945, I was able to take with me for
10William H. Beverdige, Full Employment in A Free
Society (New York: W. W. Norton and Company, Inc., 1945),
pp. 198-199.________________ __________________________ _
98
superannuation enough thousand pounds to feel fairly
happy for my future. Now each of those pounds is
worth about 6s. 8d. Like many other healthy people in
the seventies I am in danger of living longer than I
can afford to live. Our plans for useful old age are
all going hay-wire.
The underlying reason for that is the claim of
each industry to fix its own money wages by sovereign
action. Under full employment that is leading to de
struction of the value of money, and is spreading
wide-spread poverty among all who are trying to live
on savings or fixed pensions. ...
His pessimism leads him to say although there is no "in
herent mechanism" in the present economic system to pre-
A-
vent this sectional collective bargaining, he feels there
may be a remedy. He wrote:
Two suggestions may be made for dealing with this
problem. First, the central organization of labour,
such as the Trade Union Congress General Council /it
has been suggested the American counterpart would be
the recently merged AFL and CIO/, should devote their
attention to the problem of achieving a unified wage
policy which ensures that the demands of individual
unions will be judged with reference to the economic
situations as a whole. If prices are kept stable . . .
rising productivity will make possible a continuous if
not spectacular, rise of money wages, even if the share
of the total product that goes to the wage-earner re
mains no higher than at present . . . the attempt to
bring it about must be a co-ordinated attempt; it must
not be a blind groping and pressing by numerous groups,
each of which sees only its own sectional interests
and tries to exploit its particular strategic advant
age, and none of which attempts to judge the position
of the whole economy. . . .
The second condition relates to arbitration. In
the new conditions of full employment, wages ought to
be determined by reason, in the light of all the facts
and with some regard to general equities and not simply
by the bargaining power of particular groups of men.12
**"Lord Beveridge's Second Thoughts," Letter of the
First National City Bank of New York, April, 1957.
12Beveridge, on. cit., pp. 199-200._________________
99
Beveridge would not support the idea that if one
group failed to arbitrate they should he criminally prose
cuted. Instead, he would permit a strike or lockout, but
that they should he denied any support in so doing. He
points out that if collective bargaining is maintained,
then the responsibility for preventing a wage-price spiral
lies with the union leaders. However, he does not leave
the entire burden upon the unions. In conclusion he says:
The correlative to acceptance by trade unions of
an arbitration elause in all collective bargains would
be acceptance by employers in all important industries
of standardized accounting practice and their readi
ness to put all facts as to profits, costs and margins
unreservedly at the disposal of the arbitrator and an
expert staff for criticism.13
It is this last statement that is highly contro
versial, but, nevertheless, it should not be brushed aside
as impossible. We shall return to this point later.
It is understandable at this stage of labor-manage-
ment relations in the United States why Beveridge's pro
posal should be sneered at by both sides. Both sides re
ject compulsory arbitration as an encroachment on their
freedom. The businessman feels he is and should be per
mitted to settle his own affairs without someone else
meddling in his private affairs such as his profits and
how he conducts his business. On the other hand, the labor
leaders feel this reduces their importance in the eyes of
the membership.
13Ibid.. p. 201. _________
. 1 0 0 -
In regard to a "unified wage policy," well this
is another matter, and it is contrary to the union move
ment in this nation. It is strongly advocated by union
ists and their sympathizers that the local unions should
handle their own affairs in the light of their own local
and regional problems that may differ from other areas.
This same pessimism as expressed by Beveridge is
found in the writings of another contemporary British
economy who points out that "the alternatives to free col
lective bargaining already in use . . . are statutory de
termination of wages, or some hind of industrial arbitra
tion."14
The economist goes on to say:
. . . since freedom of collective bargaining is
much cherished in this country, the best way of re
taining this freedom . . . would be frankly to invite
the co-operation of the Unions in their own metamor
phosis in this way. . . .
The alternative is to make much more general the
use of arbitration. Such a step would again mean a
revolutionary change of attitude and policy— this time
on the part of the arbitrators.15
Although this economist is primarily concerned
with nationally planned production, it necessarily laps
over into nationally planned wages. However, nationally
planned wages does not imply that production be planned at
14 /
Barbara Wooton, Freedom Under Planning (Chapel
Hill: The University of North Carolina Press, 1945),
p. 108.
15Ibid., pp. 113-114. ____________
101
this level. But some will heg to differ on this point.
s .
Nevertheless, it is concluded hy the economist quoted
above that:
On the most pessimistic assumption that all these
devices fail, the price of planning must be either
compulsory industrial direction or compulsory arbitra
tion backed by legal sanctions. If it comes to that,
compulsory arbitration is much to be preferred to in
dustrial direction. . . . free ehoice of employment
is a mueh more personal matter. You either take a job
or you don't: the decision is your own. Under indus
trial direction freedom to make this active personal
decision is entirely destroyed.1®
Hence, we see here another argument in favor of
compulsory arbitration if a cooperative national wage
poliey fails to develop or fails after it is attempted.
There are, however, some economists that are not
so gloomy in their outlook. One in particular is Alvin H.
Hansen, the chief spokesman of Keynesianism in the United
States. Hansen calls his national wage policy a "respons
ible wage policy" and a "full-employment wage policy." In
connection with Beveridge’s insistence that the union
leaders have, a primary responsibility to prevent a full-
employment policy from becoming highly inflationary from
irresponsible wage demands he says:
This responsibility involves not only the level of
wage rates but also the structure of wage rates. . . .
A full employment wage policy thus involves
(l) control of the level of wage rates, as aggregate
demand is expanded, so as to promote an equilibrium
ratio of wages to profits, on the one side, and prevent
16Ibid., pp. 120-121.
1021
increases in unit costs and prices on the other; (2) a
balanced wage structure so as to prevent important
products . . . from being priced out of the market;
(3) cost reductions, involving both advances in tech
niques and removal of monopolistic and restrictive
practices.17
Hansen differs with the previously quoted econo
mists in that he believes that collective bargaining will
not be a deterrent to a national wage policy. He says:
The collective bargain in each industry has be
come a matter of national concern. The public interest
must be recognized in each agreement or the general
welfare will suffer. Hence the need for comprehensive
statistics bearing on the economy as a whole. These,
no less than the specialized statistics of each indus
try, must become a part of the data controlling each
piecemeal wage element.
Under a policy of full employment there is reason
to believe that labor's sense of responsibility will
increase. . . . Under full employment, arbitrary ad
vances in wages, out of line with productivity and a
balanced wage structure, will clearly be at the expense
of consumers— in other words at the expense of labor as
a whole. . . . When society as a whole, through
government, undertakes responsibility for full employ
ment and soeial welfare, labor may be expected, on
past experience, to respond by living up to its social
responsibilities. A positive program, policies openly
arrived at based on all the available facts, protection
from exploitation by unscrupulous groups, active par
ticipation by labor in poliey formation— these are
among the most important measures that may be counted
upon to foster within the ranks of labor a high sense
of social responsibility.18
Without a doubt Hansen's proposal can be criti
cized on the grounds that it is idealistic and naive.
Alvin H. Hansen, Economic Policy and Full Employ
ment (New York: McGraw-Hill Book Company, Inc., 19477",
pp. 157—158.
18Ibid.. pp. 245-246.______________________________
103
However, if such an attitude of social responsibility does
not develop to some extent on the part of labor unions and
management as well, then there is always the possibility
that another kind of national wage policy may be adopted.
That is, of course, a supervised or administered national
wage poliey.
A supervised or administered national wage policy.
Americans have already had two experiences with this kind
of wage policy. Obviously, if a national wage policy is
not to be administered or supervised on a cooperative
basis, then it must be done by the federal government.
This is what was done during World War II and the Korean
war. The National War Labor Board was the federal agency
that supervised the wage poliey during World War II and
the Wage Stabilization Board in the latter ease. The ap
parent success of these two government agencies has led
some people to believe that such an agency could be used
during peacetime to control inflation. There are some who
are less convinced by the national wage policy during both
wars. One economic writer cautions against direct con
trols in general and what he says seems to be apropos to
this topic. He says:
Experience in the United States suggests that
direct controls have historically used primarily to
eover over failures to take correct general steps in
the areas of monetary and fiscal policy. The end of
World War II brought a drop in inflationary pressures
before this was disclosed to be the case. Consequent-
ly, policy makers, misled by the temporary successes
104
of direct controls in World War II, are prone to rely
too much and too early upon these tactics and face up
too little and too late to the primary responsibili
ties of the general controls. It is an inherent
danger of direct controls that they serve also to
camouflage the real pressures which are building be
neath such controls, leading thereby to an attitude of
complacency which may be dangerous in the extreme.19
For some a supervised national wage poliey in
peacetime is satisfactory, but for many it would be highly
unsatisfactory as it would encroach upon certain freedoms
that Americans, at least for the present, are unwilling to
allow. There are various levels to a supervised national
wage policy. At one end of the spectrum would be total
planned wages and planned production. At the other end,
it seems less offensive but still questionable.
For example, a less offensive supervised policy
might take the following form. A law passed by Congress
on the advice of a special congressional committee that
would establish rules of responsible private behavior for
organized groups. These groups would then voluntarily
20
agree to abide by these rules and in the case of a breach
of conduct there would be federal arbitration. This would
emphasize voluntary conformity to accepted rules.
Another proposal would be somewhat more harsh in
that possibly a federal agency would be created to set up
19
Lee, op. cit., p. 506.
^William D. Grampp and Emanuel T. Weiler (ed.),
Economic Policy (Homewood, Illinois: Richard D. Irwin,
Inc., 195671 pT 42. ________ _
10 5
selective price and wage controls in key sectors of the
economy. In addition, this agency would ration and alio-
21
cate certain raw materials in the same key sectors. By
selective controls it would mean that the government would
only intervene where it has become evident that a definite
cost-push type of inflation has set in in contrast to ex
pans ion-pres sure inflation.
The author hesitates to be too specific about a
supervised national wage poliey for the very reason that
little has been done by way of setting forth a step-by-
step program. Instead, there has been much talk about the
HneedM for such a wage policy, but this is as far as it
has gone. As usual, and in this case, empty barrels do
sound the loudest.
However, to bring such a poliey into the arena of
economic ideas the author will set up a hypothetical agen
cy or board that would supervise a national wage poliey in
peacetime. One thing can be certain by doing this and
that is those who quietly entertain such an idea, or have
casually proposed such an idea (and been extremely quick
on their feet and avoided being specific) will most cer
tainly find something to be critical about.
It is hoped that their criticism will aid in their
being more specific so that such a poliey will finally be
21Ibid
106
spelled out by its prophets. And that is as it should be.
Still one can hardly be happy over the thought that
he is consciously making himself the bait.
A good starting place or point of departure for a
government supervised national wage policy seems to be with
the comments that John T. Dunlop has made in his book,
22
Saving American Capitalism. Dunlop as previously stated
in this chapter, indicates that there is a possibility that
a cooperative wage policy may work. In regard to the
supervised national wage policy, he points out that either
employers or labor unions ®could secure political power and
23
use governmental authority to formulate a wage policy.”
Dunlop seems to prefer the latter approach as he
says:
In this connection the interest and concern shown
by labor governments in developing a wage poliey is
instructive. The judgment would probably be widely
accepted that the labor governments of Europe in re
cent years have kept wages more stable than other
political parties could have done. While trade union
ists speaking for particular unions may have difficulty
in formulating a coherent national wage policy, par
ticularly under conditions of high employment, they
seem to have achieved this objective when operating as
a labor government,2^
Dunlop concedes that a national wage policy will
not find receptive ears maybe for sometime to come in the
United States, except he says, possibly during an economic
2 ^
"Seymour E. Harris (ed.), Saving American Capital
ism (New York: Alfred A. Enopf, Inc., 1950)~
23Ibid-, P* 307. 24Ibid. _____________
_ _ _ _ _ _ _ . 107
25
emergency. Then he goes on to sketch lightly how such a
poliey could come about. He says:
Requisite to the beginnings of a national wage
policy should be the revival of a permanent advisory
body to the president composed of the top leaders of
American agriculture, industry, and labor. The dis
cussions and interchange in such a body would be
effective in helping to formulate a national policy.
The body would provide a forum in which the Administra
tion could use its informal influence to affect wages,
prices, and other decisions by the principal economic
groups in the society.26
Then what happens? Silence. A silence that seems
to follow every proposal made by those who see in govern
ment control and regulation the final answer to any nation
al problem. To the author, it points up a latent disbe
lief in republicanism. An impatience with compromise and
a lack of tolerance.
Now it is the author1s contention that Dunlop's
proposal would only be the starting point for a supervised
/
national wage policy. The reason is because the Dunlop
proposal is inadequate as it lacks the enforcement machin
ery to see to it that a wage policy that the government
would like to see carried out would be carried out.
There is no reason to believe that the main econom
ic groups in our economy would be willing to Mplay ball.”
The only satisfactory step that could be taken would be an
agency patterned after the War Labor Board and the Wage
Stabilization Board. And this is how the author visualizes
25Ibid. 26Ibid.
108
how it will operate.
III. A HYPOTHETICAL SUPERVISED NATIONAL WAGE POLICY
Such an agency would, of course, have to come
about through the normal legislative channels, and how it
would slip by the interest groups concerned is not import
ant to our discussion.
The agency. First, we know that this, let us eall
it the National Wage Policy Ageney, would have to be free
of any controls by either the Department of Labor or Com
merce. So it will not be a subordinate part of either de
partment for obvious reasons. Consequently, it will be
under the direction of the Administration and accountable
to Congress.
The headquarters will be in Washington, D. C. with
district offices in each of the fifty states. In addition,
it will be necessary to have vrhat we might call field
offices, that is, offices in cities with population of
500,000 or more. It is necessary to have these field
offices in order to have close eontaet with the industries
and laborers at a local level. Washington is too far away
and the nation is too large for the program to operate
from the city by the Potomac.
The most important function of the entire national
ageney will be performed at the field level as we shall
see.
109
Its functions. The first function of the main
office in Washington will be to determine what industry or
industries should set the pattern of wages, for example,
the "Little Steel” formula used by the Wage Stabilization
Board during the Korean War. Of course, this will take
considerable time to determine but time does not permit
our dallying with how it is done. It is important to the
whole performance and success of this agency that it BE
done.
Once a broad wage pattern is established then it
is announced by the Administration with the idea that the
Administration will support this wage pattern as a yard
stick for wage increases for the year. As was done in the
case of the Little Steel Formula and as is done by the
Comptroller of Currency in asking for bank reports the
base used should be based upon the situation that existed
at a recent but prior date to prevent window dressing.
Then it is the job of the district offices to see that a
wage pattern is established in line with the Administra
tion's yardstick. This, of course, will call workers as
all industries will not be eligible for the same wage
patterns.
It will be necessary to use a state-wide cost-of-
living index and a field index to determine legitimate
wage increases. Obviously, it costs more to live in New
York and Chicago than it does in Tucumcari, New Mexico and
110
Cut ’n* Shoot, Texas. Well, it should be obvious if it is
not.
When these patterns in each of the fifty states
for the various industries within them are established,
then the district offices submit them to the Washington
office for approval. When approved then the district
offices mail the district yardstick to every business and
labor union in its state. Then the field office goes to
work as soon as contract negotiations expire. However,
sixty days before a contract expires, the field office
must be notified jointly by the business firm and the
union leaders representing the union or unions that work
for the firm. Eventually, but probably not at first, all
union contracts would be made to expire at the same time
in the same firm, for example, electricians, assemblers,
maintenance men, etc. for the sake of curtailing government
costs. That is, the field man would only have to travel
to the firm once as all contracts would expire and could
be handled at the same time. One has to watch "ye olde
budget" these days.
Now what happens if the new package contract is
not satisfactory to either management or labor? This is
the function of the field man who is on the scene during
the negotiations. If he deems the wage demands excessive
or inadequate according to the yardstick, then both par
ties are required to enter into new negotiations. If the
l l r —
second package is considered out of line (either too low
or too high), then he notifies the district office to step
into the situation. In the meantime, the firm continues
to operate on the old contract and no picketing or vio
lence will be condoned at any time. If, let us say,
management has made a lower offer than the present yard
stick, then it is the function of the district representa
tive to request a private meeting with management to re
view the books for the past contract period. If the firm
can prove that it has lost money and has not increased its
profits during this time or its profits have declined to a
critical level, then the district man will notify the
union that a wage increase is not possible at this time.
Then a contract is arranged at a lower level (lower than
the present yardstick, but not necessarily lower than the
previous contract).
Once this is done then the district office will
require to see the books of the firm twice during the new
contract year in order to determine whether there has been
some monkey business. If there is a tremendous profit
gain, then at the end of the year a bonus will be given to
the workers to compensate the difference between the actu
al wage and the yardstick for that area.
Mow if the district man is unable to work out a
situation, then both parties are liable for federal arbi
tration conducted by the Washington office.
112
The decision of the Federal arbitration hoard (a
part of the National Wage Policy Agency) is final. Now it
should be pointed out here to those who are thinking about
a government supervised national wage poliey that federal
arbitration is a must if the agency is to be a success.
Anything short of this is folly and inviting the eventual
breakdown of such a poliey. Under such a policy both
business and labor are going to have to give up what they
refer to as "prerogatives♦" Business will have to open
its books to the government and unions will no longer be
allowed to use the economic coercive weapons of the picket
line and violence. It is a road of hard lumps for both
sides and both sides have already experienced such a
poliey during wartime.
IV. THE SUBTLE ATTACK
If this hypothetical case seems rigid and cold it
is because it was intended to be presented that way for
that is the way such an agency would have to operate if it
is to operate more than a week with any degree of suecess.
It is time that someone speaks up about such proposal to
control inflation. It is never presented even to the
small degree that it has been in this paper because it
appears that those who twaddle with the idea of using
direct controls during peacetime do not want to admit to
their extreme rigidity and curtailment of certain freedoms.
ii‘ 3_
Faees toward Washington, P. C. The only side that
is ever played up hy these people is the side that the im
mediate problem is solved swiftly for the moment. The
government-agency creating wand is waved and another prob
lem is solved. But the myriad of problems that direct
controls create are either shimmed over, sugar coated, or
ignored completely. Government agencies are only a means
to an end. Not an end in itself. The people are the end
and it is up to them to solve these problems without the
continual harping for the government to step in. It is up
to the teaching profession which is in a unique position
to perform as the critic of policies and developer of new
ideas to supersede or replace the ideas they criticize.
It is their function to encourage thinking as well as aid
in developing the minds of students.. Their role does not
end with setting down the principles, fundamentals, and
intermediary steps of the various fields of study. And
yet some fail to realize their important role in society
and instead aid in only developing wparrotsM who go out of
the universities squawking, MAwrk . . . government aid
. . . government aid . . . awrk.B
The minute a problem arises, our ”intellectualsw
find its solution through the government. It leads one to
wonder if there is a moratorium on thinking in this coun
try.
The unique position of our teachers is that they
. r r r -
belong to no one. They are not apologists for any philoso
phy or group. They are the one group that we should he
able to depend upon to remain detached from the pet pro
jects of interest groups so they can call a spade a spade.
They should not play to the sideline or for the cheers of
the crowd. They are Bloners*' who can see what is and not
what someone says it is.
If some of our teachers are suspect today, it is
because they have chosen a side or an interest group to
support and they evangelize with the zeal of the much-
traveled Saint Paul. In so doing they forfeit their right
to claim to see a total problem. They are no longer
critic-advocates. They are only advocates and they have
succumbed to the easy way out, or what appears to be the
easy way, as they no longer have the time b think and
seek new solutions because they are too busy advocating a
pet idea.
Ideas are not like children. If the facts do not
support the idea, then desert the idea. One cannot be
jailed for failure to support an idea.
Why do those people who think government is the
panacea for our economic problems hesitate or fail to point
out what the ramifications of such action will bring? It
is because they are victims of their own thoughts, that
is, lack of thoughts. They seek quick and speedy remedies
in lieu of hard and difficult thinking. It is because
115
they are pessimists as far as mankind is concerned and
they are not really as “democratic" as they wish to ap
pear. Consequently, the road to a national wage poliey
supervised hy the government is the result of lazy think
ing by those who see in republicanism the lack of perfec
tion that these people cannot tolerate. In their zeal for
perfectionism, which is not by any means unusual, they are
willing to sacrifice certain freedoms that some other
people consider worth having.
The subtle attack used by these perfectionists
(those who seek to change man in their own image) is that
those who attack them or criticize them are "reactionaries/
"dupes of business," "supporters of antiquated ideas," and
"uninformed and out of contact with the modern thinking."
Or as one popular economics writer has stated recently,
these people are victims of the "conventional wisdom."
Which he uses to attack anyone that does not agree with
him in his way of thinking. It is an old technique used
by writers and debaters alike to make one feel guilty of
holding contrary views, of which, this author is guilty
of doing himself.
Although this writer admits to using this tech
nique, it has not been used with the idea of resisting
ideas contrary to his own. Bather, it has been used to
stimulate new ideas on how we can improve upon our eco
nomic system without more and more reliance upon government
116
and new ways of looking at old and chronic economic prob
lems. There is much thinking to he done on how we ean
make capitalism work better for all, but it must be remem
bered that our problems will not be solved by any one
generation of men. Long after we have departed this life
there will be new problems to be solved and problems we
have left unsolved. The perfectionist is too impatient.
He wants to solve them now and because they are not solved
now he is impatient for ideas and action and he becomes
frustrated, pessimistic about his fellow men, and he is
willing, too often, to tacitly concede defeat and take
what he thinks is the easy out in his quest for perfec-
2 7
tion. Today, the conventional wisdom is that the govern
ment can best solve our myriad of problems. The quest for
perfection is the latent desire for the return to the womb.
For within the dark, warm walls of the womb is peace and
order and a haven from the struggle for life. Someone
else struggles for the life while the unborn has no prob
lems to face and, consequently, no problems to solve.
27
If, and the author doubts it, we have a “genera
tion without a cause" it could very well be because the in
dividual is made subordinate to the whole. And it could
very well be because our youth are disillusioned by their
elders. Especially when their elders have become disillus
ioned because when they were young they supported a "cause"
and it did not materialize as soon as they believed it
should. The Christians have been advocating the return of
Christ for nearly 2,000 years. They have been laughed at
by skeptics and patronized with a knowing smile by the in
tellectual and yet they are as dedicated to this cause to
day as they were in the day the apostle Peter spoke at
Pentecost. And then we look at the Communists whether
__ . 117
Because there are certain economic problems that
are yet unsolved, these people concede that capitalism has
failed and that economic power groups cannot be expected
to work together, is— well— the only answer is— well— it
is inevitable— the government can make them do it by step
ping in and taking over in the name of the ”general wel
fare.” It is so easy to fall into line with this train of
thought, especially when you realize that it takes so much
longer to solve problems through compromise. Paradise
today!!! Hardly, it is a return to the world of our
ancient ancestors, the spineless amoeba.
Objections of direct controls. Now let us look at
some of the questions pertaining to and objections of
direct controls also include a supervised national wage
policy. Certain thought-provoking questions with respect
to wage controls have been raised by another economist.
He asks:
Where is the government agency and the omniscient
personnel which is going to take responsibility for
adjusting pay rates and differentials in line with
changing productivities, costs, and prices throughout
the economy?
How will man-hour productivity (which is the gauge
for wage increases) be measured in government, banking,
schoolteaehing, motion-pieture production, the grant
ing of legal and medical advice, and in the service
industries generally, which are beginning to overbal
ance in employment the older extractive and processing
they be native, Russians, or Chinese. They have a cause
and they have indicated they will work and wait for its
ultimate victory. We have no cause because we have no
patience. ____________________
118
lines?
Will industry averages of productivity satisfy the
employees of the more efficient firms?
How is the productivity of managerial, profession
al, custodial employees, and other "indirect0 labor to
be computed?
What form of enforcement mechanism will be used to
discipline non-cooperating minorities?
What is likely to be the effect of these restric
tions upon productivity generally?
Will the incentive to greater effort and efficien
cy by sharpened or dulled.
The current mixture of competition, employer
monopsony, and collective bargaining in the labor
market produces some weird situations and is open to
violent criticism, especially of particularistic
nature. But it does give answers of a sort to the
questions listed aoove and a number of others which
would be just as embarrassing to a central wage-eon-
trol agency. It might well be asked whether the
"managed economy" in wage matters at least, would not
create as many problems as it solved.28
And, it might be added, the same would be true of a central
price-control agency which some who see the weaknesses of
a wage policy fail to see in a price policy.
Another able economist has detected and pointed
out the weaknesses and danger of relying upon direct con
trols as the main tools to combat inflation. He points
out that:
There is probably an inadequate public understand
ing of the fact that direct controls are an extremely
expensive method of regulation. They require a large
central staff working primarily on the development of
policy aspects. And they require an extremely large
2 8
Phelps, oj). cit., p. 443.
I
119
regional-, district-, and local-level operation . . .
an economy already at full employment is required to
divert thousands of able personnel to the effective
staffing of control agencies, rather than to the regu
lar work of the economy . . . there is the personnel
time and payroll cost which business firms, unions,
farm organizations, and others in the private economy
must divert to recordkeeping, reporting, and efforts
to maintain compliance with control regulations.29
And he goes on to say:
Experience in the United States suggests that di
rect controls have historically been used primarily to
cover over failures to take correct general steps in
the areas of monetary and fiscal policy. . . . It is
an inherent danger of direct controls that they serve
also to camouflage the real pressures which are build
ing beneath such controls, leading thereby to an
attitude of complacency which may be dangerous in the
extreme.
Direet controls can be administered only on stand
ards of general equity and must, of necessity, create
many instances of individual hardship.
Direct controls are a necessary and vital part of
an all-out stabilization program. . . . They should
not be regarded as a tactic of first resort but as a
tool to be used only in extremis, as a last resort to
cover the special areas not controllable through gen
eral monetary and fiscal measures. We may hesitate to
suggest that they might be used temporarily as stopgap
measures to hold the tide while the real attack is
prepared in the chambers where monetary and fiscal
policies are settled. For, historically, the tempta
tion has proved too great. The early committing of
direet controls to the attack upon inflation has, in
the past, led to failure in ordering up the basic
weapons of monetary and fiscal action. Fundamentally,
direct controls should be used after fiscal and mone
tary policy have been firmly brought to bear upon the
inflation.30
In addition, it has been pointed out by Donald H.
Wallace that there is always the danger that direct
29Lee, 0£. cit.. p. 505. 30Ibid.. pp. 506-507.
.. _ , _ 120
controIs may fizzle or "wear oat” before they have had a
chance to correct the situation which they were set up for
31
or before that situation arrives.
These then are some of the things that should be
pointed out by those who advocate direct controls but
usually are left unsaid or skimmed over. The most import
ant thing to consider about direct controls used in peace
time is whether individuals are willing to make the neces
sary sacrifices to make them work. It is easy to propose
direct controls, but a price tag goes along with it.
31
Donald H. Wallace, Economic Controls and Defense
(New York: Twentieth Century Fund, Inc., 1953), pp. 42-
43.
CHAPTER VI
ANTI-INFLATION PLANS
It is hoped some progress has been made even if
only minor, since the beginning of this paper. The author
has attempted to establish the thesis that the chief eco
nomic problem that faces our economy today is inflation.
Then it was pointed out that when we are diseussing infla
tion, we need to be more specific and make a distinction
as to what kinds of inflation there are and what kind we
are talking about when we propose a remedy or controls.
Furthermore, it was pointed out that there is a particular
kind of inflation that is necessary for an economy such as
ours to expand and continue a sustained growth. The fail
ure to recognize the various types of inflation, it was
stressed, may lead to unnecessary direct controls and a
closer movement towards democratic socialism.
It was also pointed out that any kind of inflation
causes serious economic problems for a particular segment
of the American population, that is, those people on fixed
incomes and in some cases unorganized laborers. Following
this discussion wherein we observed some of the effects of
inflation on these people, we turned to a brief review of
svage theories, then we examined the proposal of a national
wage policy. Now we shall turn our attention to some of
the anti-inflation plans that have been proposed over time
122
and recently by those who are equally concerned with the
topic of inflation whether it be wartime inflation or
peacetime inflation.
I. DEFERRED PAY PLAN
The late John Maynard Keynes gave his attention to
wartime inflation before his death. He developed a plan
to avoid inflation which is known as the "deferred-pay" or
"compulsory-saving” plan. Keynes believed that such a
plan was more realistic than a "voluntary-saving" plan.
In addition, he believed that his plan was compatible with
the concept of freedom of choice by consumers.
The provisions for preventing inflation may be
broken down as follows:
(a) A deduction from current wages and salaries to
be credited to a savings account which would remain
blocked for the duration of the war. This savings de
duction is in addition to the income tax withholding.
The very lowest incomes would be exempt from both tax
and savings deductions, and those just above the lowest
level would be subject to a savings but not a tax de
duction. The proportion of the total deduction which
represented taxes would increase as income increased.
Interest would be paid on savings at per cent per
annum. (b) At the appropriate time after the war, the
savings accounts would be unblocked and become avail
able for spending. The propitious time for unblocking
this purchasing power would be when a deficiency of
effective demand threatened to lead the economy into a
postwar depression. (c) Other provisions included the
payment of cash allowances to all families with chil
dren, an iron ration at fixed prices supported by
governmental subsidies, permission to block some sav
ings for exceptional and unavoidable emergencies such
as illness and hospitalization, credits for prewar
commitments to mortgage payments and life insurance
payments and life insurance premiums, and a capital
1 2 3 -
levy for raising funds with which to make payment of
the deferred incomes.*
Although Keynes* plan was designed for wartime in
flation there are a few provisions that could very well toe
examined for possible use during a so-called peacetime in
flation. For example, provision (a) above could toe modi
fied and further developed toy labor unions as a part of
their new role under peacetime inflation. The unions could
lead the way for the rest of the nation's workers with
fresh thinking in this area of compulsory wage deductions
with the dual idea of saving and economic expansion. It
has been so long since a new idea has popped into the
heads of the labor leaders that it could very well be that
it may frighten them to death. But still it is worth that
risk if it means further expansion for the American econ
omy. It certainly would indicate to the American public
at large that the labor unions have more on their minds
than just more money, more money, more money. It is a
shame that the unions have failed, so far, to pick up the
ball on this problem. They are still talking about de
pression and what they accomplished for the worker since
the Great Depression. They are reminiscent of a town hero
who performed a heroic act and has not worked a day since
because he still is living on his past performance and he
^Dudley Dillard, The Economics of John Maynard
Keynes (New York: Prentice-Hall, Inc., 1948j7~pp. 251-252.
124
does not let the townsmen forget what he did. It gets
tiresome to say the least to hear the chest heating and
hraying of labor leaders who have not become acquainted
with a new thought in over twenty years. It is even more
discouraging as well as frightening when some indicate by
their actions that they do not have the least bit interest
in whether American capitalism survives.
A suggestion to these leaders would be that the
wage deductions could be held as savings for the workers
in a mutual investment fund. There are many possibilities
and the author leaves a challenge for the labor leaders.
' v ,
II. ANTI-INFLATION TAXATION
Another proposal is the use of taxation to control
or prevent inflation. This proposal is no stranger to
economists and politicians. The purpose of taxation would
be to reduce the amount of disposable income (money to
spend after taxes) in the hands of the public at large.
By using taxation it is believed that (l) the budget can
be balanced or a surplus can be created, and (2) present
incomes (disposable incomes) can be reduced to the point
where it does not dissipate itself in increasing costs.
It is common knowledge that higher taxes are
2
Kenneth K. Kurihara, Monetary Theory and Public
Policy (New York: W. W. Norton and Company, Inc., 1950),
pp. 83-84._____________________
125
unpopular in any nation and no one knows this better than
the man who runs for public office. Still it should be
pointed out that probably the best device that can be used,
in conjunetion with monetary policy, is taxation. And the
best tax in more ways than one is the personal income tax.
But the best part about the personal income tax is that it
tends to make the citizen more cognizant of the demands
that are placed on him by special interest groups. If it
3
does not, it should.
Although anti-inflation taxation is somewhat un
popular, there may be room to speculate that it will gain
more attention from legislators in the not too distant
future.
It is interesting to note in passing that taxation
to combat inflation is one of the fundamental tools sug
gested in almost all the economic textbooks. However,
after the textbook writer has shown the smoothness of
monetary and fiscal policy in checking inflation, it is not
uncommon for him to close his argument with the reminder
that higher taxation is politically inexpedient. But, one
may wonder, just how much longer that argument will be
used by trained economists. The politicians may rely upon
3
This does not imply that the government knows
better than the individual how to spend his money. But it
does mean that potential sources of inflation would be
dried up and surplus funds might even be used to reduce
the public debt.
- ; - - . 126
and ibelieve in legerdemain, tout the economist knows only
too well, or should, that economics is just plain common
sense (unnecessarily shrouded in "shop talk") and not
mysticism.
III. OVERVALUED EXCHANGE VALUE OP CURRENCY
Overvaluation of the exchange value of currency to
control inflation is another anti-inflation device. The
idea to make the domestic currency expensive relative to
foreign currencies is an anti-inflationary plan for the
following reasons:
. . . (a) because of its discouraging effect on
exports and therefore of its decreasing effect on
domestic money incomes, (to) toeeause of its encouraging
effect on imports and therefore of its increasing
effect on import expenditures, and (c) toeeause of its
cheapening effect on the price of those foreign materi
als which enter into the domestic cost of production
and therefore of its preventive effect on an upward
cost-price spiral.4
These favoratole effects are short-lived if other
nations are also experiencing inflation, and it only leads
to a continual jacking up of the value in order to moment
arily stay ahead. In addition, there is the fear that
". . . the deflationary implication of overvaluation for
the balance of payments may well toe more serious than a
5
similar implication for domestic price levels."
4Itoid.. pp. 93-94. 5Ibid.
IV. GOLD STERILIZATION PLAN
127
This plan seeks to operate dual cheeks. One, the
sterilization of gold, serves to cheek "eredit" inflation.
Two, the "desterilization" of gold would serve to check
deflati on.
Gold sterilization would be used whenever the
government considered the inflow of gold "dangerously"
inflationary. And, it should be made clear that such a
plan only deals with inflation due to gold inflows.
The plan, in the United States, would work as
f o 11 ow s :
Instead of paying for gold purchases by drawing
down and replenishing its account at Federal Reserve
banks, the government "sterilizes” gold b£ paying for
gold purchases out of the proceeds of the sale of
government securities deposited at member banks. . . .
Thus the government in effect pays for gold purchases
with government securities, and loeks the gold away
from the banking system.®
There are three reasons why such a plan (tried
from 1936-1938) may never be used in this eountry. The
first two are based upon historical experience, and the
third is still controversial. They are:
. . . (a) the unduly deflationary effect of the
"sterilization" policy on bank reserves and on business
activity, and (b) the increasing effect of the neces
sary sale of government securities on the public
debt. . . . A more immediate reason . . . might be
the belief, right or wrong, that the present powers of
the Federal Reserve authorities are adequate to cope
with the problem of member-bank excess reserves.”
6Ibid.. p. 92. 7Ibid.
_ _ _ 128
The major weakness of such a plan lies in the fact
that it only recognizes (or is concerned) with credit in
flation.
V. FORCED LOAN
A “forced loan” is similar to the “deferred pay”
plan with the chief difference heing that the former seeks
to eurtail the activities of speculators among the general
public whereas the latter seeks to reduce the supply of
8
money with the worker’s pay cheek.
The forced loan plan has been used by several
countries already for the purpose of controlling note
issues and freezing bank deposits. When the bank deposits
are frozen and the government \Tithdraws some of its note
issues, then it issues to those affected holdings in a
government loan.9
This device is considered useful during wartime to
prevent inflation, but it has found little favor as a
peacetime inflationary device.
VI. THE TARIFF PLAN
This plan has gained in popularity with some econo
mists lately and is worth serious attention.
The idea is not new by any means, but in essenee,
8Ibid.. p. 86. 9Ibid.
129
it is just this. If tariffs are reduced, then this would
serve to encourage more imports and at the same time per
mit domestic money to enter other nations which would make
it possible for them to export more goods from the tariff-
reducing country.
Harvard economist Sumner H. Slichter recently
appeared before the Senate-House Economic Committee, which
is making a study of the problems and prospects of the
American economy, and recommended all American tariffs be
cut further and all import quotas abolished over a ten-
year period.
By doing this, Slichter contended that the expos
ure of American business to foreign competition would aid
in making businessmen more efficient, imaginative, and
possibly aid in resisting excessive wage demands. He
maintained that "no single step that the Government could
take . . . would make such an important contribution to
ward strengthening the American economy."^
Such a plan, though, has troubled waters ahead
cautions a not too pessimistic economist. He says:
. . . it is likely that a reduction of tariffs,
however desirable in a short period of inflation, will
meet considerable resistance from sectional interests.
Nevertheless, the establishment of the International
Trade Organization, with its avowed purpose of promot
ing multilateral trade via tariff cuts, etc., points
hopefully to a future possibility that tariffs may be
10wCow Kicker," Time Magazine, LXXIII (March 30,
1959), p. 15. -------------
130
reduced not only to maintain long-run international
equilibrium but also to combat domestic inflation in
the short run. In
still, after all is said and done, sueh a plan re
mains a point of cooperation for many businessmen and
labor leaders. Neither group is especially happy over a
reduction of tariffs and are willing to close ranks at
this point to resist them.
VII. A PROPOSED TRADE—UNION WAGE POLICY
An economist that the author of this paper is al
ready much indebted to has set down some criteria that he
believes unions could use in preparing a wage policy.
They are:
First, it is considered necessary that trade
unions’ demands for higher money wages should be made
pari passu with increases in general productivity,
i. e., increased output per worker. If this criterion
is observed, higher wages do riot generally lead to
higher unit price. . . .
Second, trade union demands for higher money wages
would be justified even during inflation where sub
standard wages exist, since the higher wages would
merely reduce abnormal profits made possible in part
by paying wages below competitive level. Even in this
ease there is no assurance that the higher money wages,
if granted, would not lead to price increases. . . .
Third, it is considered advisable for trade unions
to refrain from pressing for wage increases on the
grounds of the cost of living, except when the general
anti-inflation program fails to prevent the prices of
essentials from rising. This criterion imposes on the
government the responsibility of keeping down consumer
prices and on trade unions the responsibility of
11
Kurihara. op. cit., p. 85.
131
preventing their higher wage demands from causing con
sumer prices to rise. If the government cannot assume
such a responsibility, then it would be better to let
trade unions get higher wages on the grounds of the
cost of living and then tax: away or borrow a part of
the increased wage i n c o m e s . 12
Such a policy as it is proposed here, obviously,
is in the rough. Still there is enough here to give the
sincere labor leaders, and by sincere is meant those who
attempt to see both sides, to initiate a wage policyfor
inflation.
VIII. ECCLES‘ PLAN
Marriner S. Eccles, former chairman of the Board
of Governors of the Federal Reserve System, made two pro
posals as a part of a plan to eombat inflation before a
Joint Congressional Committee in 1947 and 1948.
In 1947, he urged that the legal reserve require
ments for demand deposits be boosted from twenty per cent
to tv?enty-five per cent and that time deposits be raised
13
to ten per cent from the present six per cent.
The following year he proposed that "special re
serves" be instituted as an emergency measure to fight in
flation. There would be added to the regular reserve re
quirements and would pertain to nonmember banks as well as
member banks. It would be necessary for the member bank
and nonmember bank to carry short-term government
12Ibid.. pp. 98-99. 13Ibid.. p. 72
T32
securities "as additional deposits with the Federal Reserve
banks, as cash in the banks' own vaults, or on deposit with
14
correspondent banks. ..." This would "freeze" the
government securities in the banks and check the sale of
15
them for bank loans.
It is a plan that is distasteful to commercial
bankers who prefer the present setup under the Federal
Reserve System.
IX. HANSEN’S OFFICE OF PRICE RESEARCH
The noted Harvard economist Alvin H. Hansen pro
posed some years ago a device to combat inflation that may
be given some consideration again in the near future, es
pecially with the continued rumblings about creating a
price control agency. He said:
Several years ago I proposed the establishment of
an Office of Price Research designed to report to the
President and Congress on proposed price increases.
Under this plan no industry would be permitted to in
crease administered prices (steel, automobiles, house
hold equipment, etc.) for, say, ninety days, until a
full investigation had been made. Publicity, not co
ercion, would be relied upon for enforcement of a
rational price policy— one which would promote, on the
one hand, general price stability and, on the other,
continuous adjustment of the price structure in accord
ance with technological developments. A suggestion
along these lines has since been made by the Joint
Economic Committee on the Economic Report with special
reference to the steel industry.16
14Ibid. 15Ibid.
1
Alvin H. Hansen, Business Cycles and National In
come (New York: W. W. Norton and Company, Inc . " J 1951) ,
p. 574.
133
It remains to be seen what happens to this pro
posal. It has a certain appeal about it that makes it
necessary to add to this list of anti-inflationary plans.
That appeal being its ability to be integrated into a
supervised national wage policy.
X. THE CED PLAN
A statement on national policy by the research and
policy committee of the Committee for Economic Development
17
entitled, Defense Against Inflation, was recently pub
lished. The report is a scholarly document and handles
such details as defining inflation, indicating what causes
inflation, and then proposes how to stop inflation, in a
commendable manner. At least the reader knows where the
committee stands and it is easy to follow its argument.
In the third chapter of the pamphlet, wHow to Stop
Inflation,” the committee sets down three basic lines of
action to prevent long-term inflation. They are:
1. We must do everything possible to increase
national productivity.
2. We must do everything necessary to keep demand
from rising faster than production.
3. We must adopt and adhere to policies— primarily
through the voluntary action of business and labor,
but, if necessary, through governmental action consist
ent with economic freedom— that keep prices and unit
17
Defense Against Inflation: Policies for Price
Stability in a Growing Economy (New York: Committee for
Ecbnomic Development, 1958), p. 96._______________________
134
labor costs from rising, on the average, when demand
is kept from outstripping production.
In addition, the committee suggests that:
. . . the basic laws of the country be reviewed to
see whether they permit labor organizations to have a
degree of economic power which is not in the public
interest ... no group can want, or expect to retain,
power to force upon the community a choice among de
preciation of the currency, unemployment and abandon
ment of economic freedom. . . . They /labor unions/
have an opportunity to make an especially great contri
bution here by presenting a clear and fundamental
statement of their philosophy of the desirable extent,
character and use of union power in our society.
Nothing could do more to keep discussion of this issue
on a responsible level*19
In conclusion, the committee states:
The inflation problem has no easy solution. Cer
tainly direct controls of prices and wage rates, as we
have learned from experience are not easy, are not a
solution for long, and have economic consequences
worse than the ills they seek to remedy. Essential
instruments, as we see it, are the fiscal, monetary,
and debt management policies of government— which
should be used to restrain public and private spending
so as to keep demand from rising faster than the
nation’s capacity to produce. At the same time,
action should be taken on numerous fronts to build up
the nation’s capacity to produce. This requires
elimination of unnecessary demands by government on
the private sector of the economy; adoption of tax
policies that promote saving and investment; avoidance
of artificial restrictions on output by government,
business, and labor; and improvements in the mobility
of resources.20
The CED report is thought-provoking and stands as
a reminder to those who are in search of THE solution that
there is no single and permanent solution for inflation.
Although the committee does not present a new approach to
18Ibid.. p. 43. 19Ibid., p. 63. 20Ibid., p. 64.
— . — ' 135
this problem or present any radical proposals, its plan
tries to face the problem head on without avoiding reality.
For example, the committee recognizes labor unions as a
strong economic power group, but does not recommend their
destruction. Instead it recommends a self-analysis by the
unions.
The committee's emphasis on voluntary action can
easily be taken as a weakness in its plan. It should not
be taken as such. Rather, it indicates a firm belief in a
republican form of government and a modified capitalistic
economic system. In addition, it indicates a belief that
there is still time enough for some degree of voluntary
action by these strong economic power groups to take place
before the situation becomes critical.
The one glaring error or oversight in the com
mittee's plan is the fact that it did not acknowledge or
recognize expansion-pressure inflation as a type of infla
tion. And the failure to do so was apparent in the com
mittee's three-pronged attack on inflation. Especially,
its insistence on an increase of national productivity in
dicates this. This will not stop expansion-pressure infla
tion. When efforts are made to expand the economy, there
is reason to suppose that these people would be at a loss
to explain why this basic line of action had failed to
stop inflation. A failure to detect expansion-pressure
inflation could very well lead them to rely more and more
136
upon points two and three to the detriment of the entire
economy.
It is believed hy the author of this thesis that
this failure to recognize expansion-pressure inflation has
led Professor Galbraith of Harvard University to question
the validity of such a plan presented by the CED. So this
is a good time to examine his anti—inflation plan.
XI. GALBRAITH’S CGC AND PUBLIC TRIBUNAL PLAN
It is an unusual phenomenon, if not a rarity, for a
book written by an economist to be on the best seller list.
This in itself speaks well of Professor Galbraith’s ability
to communicate with those most affected by economic laws
and economic systems, that is, the public. His recent
21
book, The Affluent Society. is a book much to be envied
by his colleagues because it proves that a book on econom
ics can be written a t ! " a level that both the trained econo
mist and the layman can understand and enjoy reading.
To understand the position that Galbraith takes in
regard to inflation it is necessary to return to a previ
ous book he authored and that is American Capitalism: The
22
Concept of Countervailing Power wherein he said:
21John Kenneth Galbraith, The Affluent Society (Bos
ton: Houghton Mifflin Company, 1958}, pp. xii, 368.
OO
John Kenneth Galbraith, American Capitalism: The
Concept of Countervailing Power (revised edition; Boston:
Houghton Mifflin Company, 1956J, pp. xi, 208. ______ ___
137
It is inflation, not deflation or depression, that
will cause capitalism to he modified hy extensive
centralized decision. The position of capitalism in
face of this threat is exceedingly vulnerable. This is
not a matter of theory but of experience. In the
autumn of 1950 a secondary military operation . . . was
sufficient to bring about a wholesale centralization. .
. . A few months of inflation accomplished what ten
years of depression had not required.
Policy against inflation has a profound effect.
Boom and inflation, in our time, are the proper focus
of conservative fears.^3
What did Galbraith have in mind as how to deal with
inflation? For that answer, it is necessary to examine The
Affluent Society.
. . . it is necessary to foreclose on what is per
haps the commonest error in contemporary attitudes to
ward inflation, although the point is well understood
by economists. This is the almost inevitable tempta
tion to regard increased production as a remedy for
inflation. It is the most natural of errors. . . .
Hence, from this statement, it can be seen that he
rejects point number one under the CED plan. What does he
say about points number two and three which were the con
trol of the level of demand and voluntary restraints on
wage and price increases, respectively? He says:
Inflation could be controlled by a sufficiently
heavy reduction in the level of demand. It could be
controlled with a less drastic reduction if something
could be done to arrest the interaction of wages and
prices or, to speak more precisely, or wages, profits,
and prices. ,
The conflicts here will be evident. The
2 3Ibid., pp. 200-2G1.
2^Galbraith, oj>. cit., p. 215.
138
introduction of slack, especially if it must be con
siderable, is in conflict with the imperatives of
economic security. And the use of controls is in con
flict with the ancient conviction that resources must
be allocated efficiently between their various employ
ments and that the free market is the most efficient
and possibly even the only satisfactory instrument of
such allocation. Setting the store that we do by the
production of goods, we have here a seemingly decisive
argument against the use of controls.25
This takes care of points two and three. So the
obvious question is how would Galbraith tackle this prob
lem of inflation?
Although Galbraith is an interesting writer, he
gives his reader the impression that organization in writ
ing is secondary to enlightenment and entertainment. For
one must search hard for what he is striving to do. So it
will be necessary to give a brief review of the ideas Gal
braith apparently wishes to convey in The Affluent Society.
The importance of inflation as a problem in his
book is because it is "the implacable enemy of social
balance” which is "a satisfactory relationship between the
supply of privately produced goods and services and those
2 6
of the state. ...” In order to redress this balance,
it is important to divorce production from economic secur
ity, that is, the fear of depression and recession,
2
Ibid.. pp. 224-225. Also note the adjective
"ancient” in this quotation. Galbraith is a master in
word selection. Some of his words have the impact of a
bowling ball well placed between the number one and three
pins.
26Ibid., p. 255
t
139
especially for the laborer.
Now Galbraith seeks to remedy this fear of unem
ployment (which he calls the divorce of production from
economic security) by instituting a system he calls Cyclic-
2 7
ally Graduated Compensation. or CGC. His CGC should not
be eonfused with the existing unemployment compensation
program. He points this out.
The present system, administered by the states and
with the present differentials between states, should
continue to provide the basic payment. CGC should be a
purely federal enterprise. Economic policy relating to|
the level of economic output is now a recognized feder
al responsibility. The federal government is aceount-
able. Pro tanto, the unemployment associated with
changes in output is a federal responsibility. Since
such unemployment has no conceivable actuarial aspect,
it should be a current budgetary charge. When season
ally adjusted unemployment remains above the level
which represents the amount necessarily associated with
full employment for a specified period of time, the
federal supplement would become payable. This would
take the form of a specified fraction of the difference
between the worker’s weekly earnings over a period in
his last employment and his entitlement under estab
lished unemployment compensation. . . .
. . . Therefore the worker should be entitled to
compensation for this type of unemployment for as long
as it lasts. In other words, as long as unemployment
continues above the specified levels, the total of the
CGC and the regular payments should continue. The
extra cost, beyond the normal period of eligibility, is
also logically a federal responsibility.28
27Ibid.. pp. 298-306.
p Q
Ibid., pp. 299-301. It should also be mentioned
that Galbraith is aware of the possible union and voter
pressure to keep the rates up once they are at that level
associated with a high volume of unemployment. Still he
is willing to risk this for the sake of "social well
being."
1410
Now his GGC plan will make more tolerable the unem
ployment which is associated with price stability. But
what about minimizing the unemployment?
If . . . a maximum employment policy is pursued,
and if inflation is to be avoided, the only possible
course is to have more controls. Given full employment
or any close approach to it, wages and prices are sub
ject to large discretionary movements. The only pre
ventative is some public restraint on this discretion.
. . . Where, on the basis of past behavior, prices
and wages so interact to bring persistent price ad
vances, wage increases that are held to require a price
increase might be subject to ratification by a public
tribunal or one on which representatives of management,
labor, and the public participated. . . . Wage in
creases not alleged to require price increases would
not be subject to such ratification. Wage advances so
granted and those found to be within the capacity of
the industry to absorb could not thereafter, without
showing cause, be offset by price increases.29
This then is the way that Professor Galbraith
would handle, for the moment, the problem of inflation.
That is, one would assume until his plan became the "con
ventional wisdom."
Actually, Galbraith's plan does not come any where
near solving the problem of inflation because he only sees
two kinds of inflation. He recognizes demand-pull and
cost-push, but that is where he stops. Because he is no
body's fool and because he is probably a pessimist by
nature, he takes what appears to be the most logical out.
Which is, for him and others like him, more government
intervention and control to offset the illogical actions
29Ibid.. p. 306.
= :
of imperfect man.
XII. THE BURNS PLAN
Arthur P. Burns, president of the National Bureau
of Economic Research and former Chairman of the Council of
Economic Advisers under President Eisenhower, has set down
a plan for combatting inflation in a pamphlet entitled,
Prosperity Without Inflation.
Burns has a penetrating mind and a belief in the
American economic system. He recognizes the shortcomings
of mankind, but he does not indicate a willingness to take
on the task of changing mankind. He has a plan that is
moderate in comparison to some that have already been re
viewed. On the other hand, it can be taken as too radical
or just another "let the government do it” plan. It de
pends, of course, where one is sitting on the political and
fence.
Burns contends that:
Reasonably full employment and a reasonably stable
price level are not incompatible. We have often come
close to this ideal in the past, and we have done so
again recently during the years from 1952 to 1955.
The matters that I /stress/ . . . explicit recognition
of reasonable price stability among the objectives of
the Employment Act, improvement in the practical work
ings of monetary and fiscal policies, the reduction of
monopolistic practices, and better organization of
economic policy-making— will not be attained without
Qf»
Arthur P. Burns, Prosperity Without Inflation
(Buffalo, N. Y.: Smith, Keynes and Marshall, Publishers,
1958), pp. viii, 8 8.
142
great and continuing effort. But if I am right in
thinking that these measures will significantly im
prove our chances of maintaining a reasonably full
employment over a long span of years, the effort is
surely worth making.31
His first step would be:
. . . a national declaration of purpose with regard
to the level of prices that could have a moral force
such as the Employment Act already exercises with re
gard to our levels of production and employment. This
can be simply accomplished by including reasonable
stability of the consumer price level among the ob
jectives of the Employment Act which ’it is the con
tinuing poliey and responsibility of the federal gov
ernment to use all practicable means’ to promote. . . .
1 believe that it would be a highly constructive step
if the Congress stated explicitly what the Act appears
to some of its interpreters to state implicitly.
One of the likely consequences of the suggested
amendment would be a greater emphasis in the Presi
dent’s annual Economic Report on the outlook for
prices and on how reasonable stability of the price
level is to be sought. The reports of the Joint
Economic Committee of the Congress would naturally
move in a similar direction.32
His second step would be the improvement of the
practical workings of monetary and fiscal policies. He
urges a more prominent place for fiscal policies, especi
ally since he sees no reduction in the amount of defense
33
spending in the future.
He sees an increase in the enforcement of anti
trust laws, but detects a lack of restraint placed on
labor unions. In this respect, he says:
31Ibid., p. 8 8. 32Ibid., pp. 71-72.
33
Ibid., pp. 73-74. See p. 82 for his monetary
proposals.
, — - — ---— _ _ — __— ---- -— -------------------------------- -r43” ”
. . . The least we can do with regard to trade
unions is to subject their finances, as well as the
election of their officials, to standards defined hy
law. Sueh legislation would of itself have no effect
on what happens at the bargaining table; but it should
help to remind the leaders of our trade unions that
unless they practice greater restraint and foresight,
the government may need to take drastic steps to curb
their power to push up costs and p r i c e s .34
His fourth step he would handle as follows:
. . . Both the means and the experience now exist
for another major advance in the machinery of formulat
ing and integrating the economic policies of our far-
flung government. This can be simply and effectively
accomplished by lengthening the arm of the Advisory
Board on Economic Growth and Stability. . . . The
Board might continue to function as it now does, except
that its deliberations would be preparatory to period
ic— say, monthly or semimonthly— meetings at the high
est level of our government. These climactic meetings
of the Board would be conducted with the President in
the ehair and with the heads of the departments and
agencies represented on the Board, as well as their
deputies, in full attendance.33
These four points or steps give a general outline
of Dr. Burns' proposal or plan to bring about prosperity
without inflation.
But again it is neeessaiy to point out that the
glaring error in this plan is the fact that it does not
recognize expansion-pressure inflation. And if the title
of Burns' book is misleading it is because it should be
entitled, Hprosperity without cost-push inflation.** For
this is what his plan is designed to eombat.
Still, it must be reiterated over and over again
that even when cost-push inflation is brought under control
34Ibid., p. 84. 35Ibid., pp. 86-87.
\
144 I
to the degree that it does not pose as a threat to the en
tire economy ( ‘ and this does not imply direct controls)
there will still be inflation. Inflation due to economic
growth and expansion plus basic inflation.
If this type of inflation is not recognized, then
it will continue to harass those people who seek to con
coct a panacea or stopgap to STOP what they see and define
only as inflation. What they call inflation is what has
been defined in this thesis as cost-push inflation and by
pouring all their efforts and time into preventing this
type of inflation they are most certainly going to be faced
with one of two things or both when they have reasonably
checked this inflation.
First, they will be faced with the hard facts, it
is believed, that after they have instituted such a plan
as Burns' or the CED plan that inflation still exists and
it will be frustrating to say the least. Because all logic
will tell them that the measures that they have followed
should have STOPPED THE INFLATION. Second, their measures
could very well bring about a chronic condition of reces
sion, that is, recessions brought about deliberately, but
unintentionally because such measures are designed to slow
things up. In using these devices to stop what they see
only as a cost-push inflation they may become desperate
when they find that their measures have failed to stop in
flation and tighten up even more to bring this inflation
, . 145
under control. They may have brought cost-push inflation
under control (or even prevented it before it ever start
ed), but because they do not recognize expansion-pressure
inflation their tightening up of the economy with their
devices may either retard or STOP this perfectly natural
type of inflation and throw the entire economy into an
economic depression.
It is firmly believed that if this type of infla
tion is not recognized and if we do not begin to study this
theoretical possibility, that is, to either prove or dis
prove this thesis, then it could very well be that out of
frustration mingled with desperation that we shall accept
a course of action that we shall ultimately detest.
We are presently in the heart of the forest flail
ing the air with our arms, bumping into and darting in and
out of the trees, and shouting to the heavens, "Where are
the trees?" It is time for us to stop and take a look
around.
CHAPTER VII
A NEW OUTLOOK
It is commonly said that "figures do not lie,” and
it has been accepted more or less as a truism. It is also
a fact that although figures may not lie, those who compile
them or use them unconsciously may. This is not a left-
handed swipe at those who would oppose what the author is
about to say, rather it is an acknowledgment that two view
points can develop out of the same set of figures and sta
tistics out of sincerity rather than dishonesty. For ex
ample, the battle still rages over who has properly inter
preted the statistics compiled on real wages or whether the
unions have or have not raised real wages.
One economist has argued that the kind of inflation
that the American economy has been experiencing is expan-
sion-pressure. The author is inclined to agree with him.
This economist says:
When we look for evidence of the source of infla
tion in heavy expansion expenditures in industry, we
find immense figures in the post-war years. Beginning
in 1946, the annual figures for gross private capital
formation run like this, in billions of dollars,— 27,
29, 41, 32, 51, 56, 49, 50, 48, 60, and, in 1956, 66
billions. Here, I suggest is our high, rising and
ample source of inflation since World War II— the tre
mendous pressure of American industry to expand our
economy.1
Spencer Pollard, "Three Kinds of Inflation,” A
Talk Presented to the Faculty Club of the University of
Southern California, Los Angeles, March 12, 1958, p. 6.
The figures he quoted were from The Economic Almanac of the
I ¥ 7 -
Nbw if this is the kind of inflation that we have
been having, then there is no reason why we should attempt
to throttle it as was recently done at a time when we were
due to have an inventory recession which resulted in the
1957-1959 recession. To quote this same person again, he
says:
There is no record in history of an expansion-
pressure inflation becoming runaway, since the rate of
expansion is automatically limited by the physical
capacity of industry, and plans for expansion will not
be pressed forward until someone comes free to do the
work. Occasionally, we may get a speculative bubble
which is unhealthy, perhaps in the stock market, or in
Florida land, or in the South Seas, but these can be
canceled by direct controls on credit to those little
areas. It is not necessary to strangle the whole
economy to take care of such local situations.2
Since one of the key targets in the recent propos
als to control or prevent inflation is the labor unions,
the author will proceed from this point to present his so
lution to the problem of inflation which is at the same
time a rejection of a national wage policy and other anti
inflation plans.
I. TEE COUNTERVAILING-POWER WAGE POLICY
It appears to the author that not only are union
demands for higher wages proper in a period of expansion
pressure inflation, but they are also, indirectly and
National Industrial Conference Board, 1958 (New York:
Thomas Y. Crowell Company, 1958J, pp. 405-406).
2Ibid.. p. 14.
; : nr
until this type of inflation is recognized, in the public
interest. That is to say, if the unions are successful in
increasing their wages, which of course is their primary
goal, then they tend to cause wages to rise for the non
union worker. In addition, the union demands for higher
wages are in the public interest because, whether knowingly
or not, they tend to lead the economy in the direction of
continuous expansion, and it is at present a "coercive"
leading due to the misunderstanding of the different kinds
of inflation. Now this is not to say that all union wage
demands at present function in this manner.
The extent to which the union may go in demanding
higher wages, it is assumed by the author, can be con
trolled best by countervailing power (using the contractual
jwage philosophy) rather than by legislative action or a
national wage policy. The legislative action in mind that
jis presently being proposed is either to bring the unions
under the Sherman anti-trust law or enact an antitrust law
especially for the unions. This is, of course, not ob
jectionable if it does not curtail or hamper the normal
procedure of collective bargaining. If used otherwise then
it would be deliberate weakening of countervailing power
which has been most successful in the American economy. It
is a self-regulating force that will work, contrary to what
Galbraith contends, during a period of expansion-pressure
inflation provided business knows when to resist and not to
— ~— --- ~----------------------------- i¥sr
resist wage increases. It seems logical to deduce that
Galbraith had a cost-push type of inflation in mind wherein
there is no increase in the supply of goods.
How would the theory of countervailing power work
under the conditions of an expansion-pressure inflation to
regulate abusive and outrageous demands? Just this way.
Assuming the unions or a union made irrational
demands or failed to set a realistic goal, then the corpor
ation or firm can and must use countervailing power to re-
sist these demands. It would be suicidal for unions to
make demands that are not based on sound economic reason
ing, that is to say, wage demands for no apparent reason
other than to raise wages. (it was pointed out that there
is automatic control due to the physical capacity of in
dustry .) On the other hand, if the wage demands are made
to stimulate or prod the firm into increasing its effici
ency, productivity, and, ultimately, to higher profits than
it has served a dual purpose. One, to increase wages and
purchasing power, and two, to lead the economy in the
direction of expansion and growth.
All of this seems to be sound reasoning if one
accepts the premise that inflation (expansion-pressure) is
the priee that, must be paid if an economy is going to grow.
The problem is not how to stop this kind of inflation, but
rather how to keep it under control.
q
See footnote 24 on page 47. __________ _
______________ : : 150-
There is much talk about stabilizing prices and
wages, but to do so would stop expansion. If by stabiliz
ing it is meant to keep prices and wages from jumping
rapidly upward, but permitting them to rise moderately,
this makes sense. However, if stabilizing means to hold
prices and wages at a certain level for any length of time,
then such an idea is utterly ridiculous. The economy can
only go up or down because as yet, it has to be proved that
it can level off or plateau for any length of time.
The author does not mean to imply that there eannot
or ever will be a recession. Recessions will more than
likely occur, but it is unlikely that they will be due to
increases in wages. They will come from such things as
declining industries, foreign products, bad investments,
world affairs, postwar adjustments, bad planning by manage
ment and labor unions, and numerous other unforeseen con
tingencies. The idea of it being caused by over-expansion
is rejected until proven otherwise.
It is the author’s contention that if the eeonomy
cannot continue to expand at a moderate rate of increase,
then it cannot mark time as it were at a certain level
until another boom comes along. The only other alternative
is a recession due to r t cold feetw is because too many
economists, businessmen, and politicians do not have faith
4k
in American capitalism. So many have operated and
4Many such persons accept the psychological
_ __ : 151
5
theorized on the basis of hindsight so long that they dare
not face the future out of fear. A fear of what is really
the built-in power and strength of capitalism that has yet
been unleashed.
As pointed out already there is always the possi
bility that certain segments of the economy at one time or
another may suffer a recession or a malfunction because of
poor judgment, acts of God, and excesses. However, to sit
back, so to speak, in one's leather chair before the fire
place with a pipe or stoogie and repeat trite adages like
"what goes up must come down," "you can only blow a balloon
so large before it bursts," and countless other similar
sayings when referring to our economy is to admit that
capitalism is a failure. Actually it is not capitalism
that is a failure, it is the human participants in the
system because they fail to accept the challenge that a
capitalistic economy creates which is— expansion.
There are ways to control inflation other than the
traditional ones and without relying upon direct controls.
explanation of the business cycle without ever knowing why
they feel good times or bad times are coming. They never
get below the surface to ask why. Henee it is impossible
for them to explain their lack of faith in the success of
the capitalistic system.
5
The author does not reject the benefits of hind
sight. He only wants to stress the fact that it can be a
deterrent to progress and progress means new ideas. It is
easy for one to get in the habit of saying, "Well, it has
never worked before" or "That isn't the way we used to do
it," etc.
. — ----------------------------- — ----- 152-
Ways in which we have not yet sought out. One, of which,
is countervailing power, another is a better understanding
between management and labor. Instead we get ”cold feet”
and stop expansion and bring on a recession. There are by
products of an expansion-pressure inflation. Some of them
we already know about and have already taken steps to cor
rect them or are in the process of doing so, for example,
escalator clauses in contracts and variable annuity life
insurance policies. It has been suggested we do the same
thing with pensions, bonds, and savings accounts. It is an
area that needs to be investigated, and the proposal is
worth looking into before it is condemned. This should be
done by private enterprises as they have a large stake in
American capitalism.
The union’s role in this type of inflation is not
yet obvious to its leaders. It is time for many of them to
change their economic thinking in the light of the changes,
especially, a change from depression economies to inflation
economics. They are about twenty years behind the times.
David MeGord Wright points out that there is a need
for a change in the union thinking or aetion toward secur-
ity. He says that ”job security and social growth can
7
never wholly be reconciled,” and he goes on to say:
Keep in mind Galbraith’s idea of divorcing pro
duction from security. He would make it entirely a federal
responsibility to remove the fear of insecurity.
7David McCord Wright (ed.), The Impact of the Union
153
The basic problem is that it is absolutely impos
sible to have a society in which expansion will not
inconvenience some people. No private business, unless
it is part of a system of ironbound monopolies cutting
off all further change, can guarantee to its workers
eternal security or unbroken routine . . . no socialist
or communist bureau could do the job either . . . the
tragedy of economic life, no matter whether it be under
socialism or under capitalism, is that change which
benefits society as a whole virtually always implies,
at the very least, serious inconvenience to certain
work groups within society.
It may be that people will come to prefer . . . a
world of secure poverty. It may be that they will feel
it better to stop drilling of oil wells in order to
keep the coal workers prosperous; to stop the invention
of airplanes in order to keep railroad workers prosper
ous, and so on down the line. But where would we be
today if our great-grandfathers had made a similar de
cision. 8
What does this mean? It means that labor unions
need to face the possibility of risks involved in techno
logical changes along with industry. The significance of
this is that unions as well as industry are at times guilty
of attempting to maintain the status quo. Rather than use
the traditional way to solve a problem, that is, do nothing
until the crisis, it is time for the unions to seek ways to
solve the problem of technological changes. One way is to
persuade management that it is to its own advantage to in
vite labor to sit in on meetings wherein plans are made fox
the future. Such a cooperation plan is already in exist
ence although not to any great extent. It is called the
(New York: Harcourt, Brace and Company, inc., 1951), p. 273.
8Ibid.
154
9
Scanlon Plan, Although it involves more than just future
planning (it stresses the sharing in the profits and loss
es, etc,), it is the basis for a plan to prepare for tech
nological change well ahead of time.
This proposal of a closer working relationship be
tween union and management is somewhat similar to John
Maurice Clark's proposal of voluntary action on the part
of union and management to show more social responsibility
in their bargaining,'*’ ®
The chief difference is that Clark does not propose
an actual faee-to-faee and continuous relationship between
the two parties on planning for the future in the public
interest as well as their own. The former seems to be the
most realistic as well as in harmony with the bargaining
approach. Furthermore it is time for the unions to stop
using their time-worn slogans of the "exploitation” of the
- worker. If they are "exploited" the author would like to
be "exploited" in the same manner.
The labor theory of value aids in perpetuating the
idea of exploitation. It rejects the idea that capital is
"productive," which is unfortunate. It is true "capital"
does not physically roll up its sleeves and then operate
9 / \
Joseph Shister (ed.), Readings in Labor Economics
and Industrial Relations (second edition; New York: J. B.
Lippineott Company, 1956), pp. 415-426.
_______^®Wright, op. eit., p. 27.____________________ i ____
155
a jack hammer, but eliminate the capital (whether privately
owned or publicly owned) and the jack hammer becomes idle.
No pay. No work.
Hence, the author must reject the proposals of
those who propose to break up what they call the monopoly
power of the unions. What they see as monopoly power is
what Galbraith sees as countervailing power. Any effort tc
’ ’break up” this power would be detrimental to not only
labor-management relations, but the economy as a whole.
To restrain its monopoly power in order to make the unions
more responsible in their actions— yes. This aids the
ensuring that with rights goes responsibility. Let us
recognize that we have big business, big unions and big
government and that the destruction or break up of any one
of these would be socially disadvantageous. What is need
ed, therefore, is a countervailing-power wage policy with
regards to these three factors.
What the author proposes in this chapter is what
might be called the countervailing-power wage policy. And
it is presented, although still in the rough, as a proper
wage policy to be followed in a period of expansion-press
ure inflation. It is not a panacea, but it is believed
that it is a much more realistic approach or step in the
right direction in helping to understand and to control
our nation’s paramount problem— inflation due to economic
expansion.
II. GETTING INTO FOCUS
156
Once we recognize expansion-pressure inflation as a
by-product of economic expansion then we need to learn
(through trial and error) how to guide it within a "sta
bilization band."^* It is believed that we can do this
with (l) a better coordinated use of our monetary and fis
cal policies, and (2) through the use and control of our
public debt. It is not without danger as one economist has
already pointed out. He says:
. . . Stabilization and freezing are not synony
mous . There is real danger that a stabilization pro
gram will be administered "nervously" and that counter
ing forces will be rushed into play at the first sign
of movement in the private economy. Long-run progress
depends upon the maintenance of sufficient flexibility,
so that some industries will be encouraged to expand
and bid resources away from others which are less
efficient or whose products no longer have their former
appeal in the market place. A stabilization program
must be administered loosely enough to permit reason
able movement among the self-adjusting forces of the
economy.12
The function of the American political parties. It
is the function of the American political parties to deter
mine the width of the stabilization band through joint
efforts in the Senate and the House. It is the responsi
bility of the Administration to make the initial proposal
Maurice W. Lee, Economic Fluctuations (Homewood,
Illinois: Richard D. Irwin, Inc., 1955)j p .427. See sche
matic illustration of moving stabilization band.
12Ibid.
157
and to do the guiding which means the Administration will
be held responsible for its actions. Furthermore, it is
the responsibility of the major economic power groups to
operate within this prescribed, but flexible band.
All of this means that any Administration that
assumes the reigns of government today must have an organ
ized economic policy for the nation. But any economic
policy that does not recognize or include expansion-press
ure inflation when it is formulated is defunct before it
is ever put into force.
And last, but eertainly not least, sueh an approach
to learning how to control expansion-pressure inflation to
be used to guide this nation to its finest hour requires
men and women in government with integrity and unashamed
convictions in a republican form of government such as we
have, but we may lose.
The major economic power groups. Our major econom
ic power groups (business, labor, farmers, and government)
and the American voter should pause and reflect upon what
representative government means. A representative of the
people and their interests does not mean a npuppet.M It
does not mean selecting a person that can be "controlled,"
but rather a person who through his own intellect will
study issues and proposals to the best of his ability and •
then act on what he believes is the best eourse of action
not only for the people he represents but the entire nation
, lse
This is not an idealist's conception of a representative of
the people. For when people begin to smile inwardly when
such a high standard is expected to he met, they are not
gradually decaying and with them their government, hut they
are already decadent as in their government.
Far too many politicians find it justifiable to
sacrifice integrity on the altar of expediency. Far too
many voters insist that they do just that or else. If
politicians find it difficult to command respect and avoid
glancing into as many mirrors as they ean, the fault lies
with those who withhold that respect— the voter.
Americans should know, and if hy now they do not,
then they should be told that there arc no panaceas. And
when they are offered, they should be avoided like one
would avoid a plague.
The most difficult form of government and type of
economic system to make work is the combination that we
have in the United States. It is difficult because it
runs contrary to man's inherent desire to hold power over
others. Even though it is the most difficult to make work,
it is the most rewarding in the end.
A nation does not remain free by taking away cer
tain freedoms of action and transferring them to the
government. Government is designed to ensure or protect
freedoms, not usurp them. It remains free by being con
stantly reminded that with rights and freedoms go
, 159~
responsibilities and duties. The device of government
intervention should only be used when all other devices
fail (excluding wartime) or as a big stick to encourage
self-discipline. Which, after all, is self-government.
As free and thinking men we must always remember
this, and we must remember to practice what we say we be
lieve .
III. CONCLUSIONS AND RECOMMENDATIONS
It is now time for the author, like a bullfighter,
to stand erect and face the horns. For the writer it is
the horns of those who will attack his conclusions and
recommendations. For the bullfighter it is the horns of a
charging animal that weighs nearly a ton. Although it is
conceded the position of the writer at histypewriter is
obviously much safer than that of the bullfighter, both
must try to anticipate the movements of their opponent
with success. Both must face the moment of truth.
The author and Keynes. First, the author's posi
tion in regards to the late economist, John Maynard Keynes,
should be made clear if it is not already. The author has
accepted Keynes' thesis that the equilibrium point of the
economy at a given point of time may be at less than full
employment and hence at any level, and that the equil
ibrium of full employment defended by the classical econo—
mists was only one of many equilibrium levels.____________
___ 160
The author has accepted the income-expenditure ap
proach (C / I = Y) as a tool to a better understanding of
economies to be used in conjunction with some neo-classical
theory that has survived the test of application in the
real world.
The author is not a Keynesian, but he has been in
fluenced by Keynes as he has been influenced by Smith,
Ricardo, Maithus, Marshall, Mitchell, Veblen, Commons,
Schumpeter, Hansen, Galbraith, and the university profess
ors that he has studied under. And as life goes on he will
most likely (let us hope so) be influenced by other ideas
presented by men. To claim that one has not been influ
enced to some extent by others is to claim inertia of the
mind. To claim a man is a t t ThisH or nThatH because he may
accept certain tenets of a man's philosophy is to claim a
closed mind. To claim one cannot admire a man he does not
entirely agree with, or does not agree with at all, is to
claim no mind at all.
The author admires Keynes for daring to upset the
apple cart and whether he did or did not is academic. He
approached an old problem (depression) with some new ideas,
some borrowed and some original, and what was his and what
was someone elses is again academic. What is important is
that he dared and he challenged and he advocated and in
doing so he stirred up a lot of dust and cobwebs that had
gathered in the minds of some men.
. 161”
The author introduced Keynes into this paper as an
*
example only to show that it was primarily his efforts to
seek a solution for depression that provoked, prodded and
possibly expedited this nation's present depression policy.
And this is not to imply that the present accepted (gener
ally) policy is by any means perfect. But then, what is?
However, it does mean we have a policy to combat depression
that can be put into action when called for. There are
differences of opinion as to when to use it and how much of
it to use and there always will be, at least as long as men
remain free to hold opinions that clash with those of
other men or possibly our own.
Expansion-pressure inflation. It has been suggest
ed by Dr. Speneer Pollard, economics professor at the Uni
versity of Southern California, that there are three kinds
of inflation and that one of these three kinds, expansion-
pressure inflation, is the result of "the tremendous press-
13
ure of American industry to expand our economy." For
evidence of this type of inflation, Pollard suggests a re
view of the postwar figures of heavy expansion expenditures
14
in American industry.
A new outlook. It has been suggested by the author
that a new outlook towards inflation needs to be developed
■^Pollard, loc. cit. *^See page 147.
-------------------------------------------------------------— ------- TW2T
if we are experiencing an expansion-pressure inflation in
the United States rather than a cost-push inflation. This
new outlook calls for a revision in the thinking of busi
ness and labor as well as government.
The author maintains that business and labor unions
must be reminded that part of their new role under expan
sion-pressure inflation is self-enforced responsibility in
regards to wages and prices in their natural pursuits of
self interest. These two major economic groups should be
come cognizant of the fact that with rights goes responsi
bilities. It is the author’s contention that only one part
of the equation of rights equals responsibilities has been
stressed in the last decade or more and that is RIGHTS.
The overstressing of rights may lead to warranted,
but socially disadvantageous, federal and state legislation
if these groups fail to exercise more restraint than they
have to date. If they fail to practice self-restraint,
then severe legislation may well lead to the destruction of
countervailing power, a force that works for and at times
against these economic power groups.
It is the author's contention that the force of
countervailing power among these groups is much more soci
ally acceptable and also in the spirit of our economic and
political system.
The failure of countervailing power through total
disregard for self-restraint may lead to direct controls
163
which can only lead to forfeiture of certain rights pres
ently enjoyed.
Another factor to he considered in regard to the
impossible dissolution of countervailing power through
social-reform legislation is the failure of some labor
unions to rid themselves of hoodlum leaders. If labor
unions are to practice social responsibility, one could
hardly expect these hoodlums, who have no regard for soci
ety, to understand what social responsibility means, let
alone practice it.
Furthermore, the businessmen who have permitted
intimidation by corrupt labor unions to spread and have
been willing to cooperate with them not so much out of fear
for their lives, but mostly because of the fear of a loss
of financial security are no better than those who intimi
date .
The quest for security by business as well as by
labor unions has given them strange bedfellows indeed. A
serious question arises as to whether all values are to be
weighed in monetary terms? Another question that should
be answered is can social responsibility be practiced in
reality?
Rejection of a supervised and voluntary national
wage policy in peacetime. This leads to the next conclu
sion which is that a supervised national wage policy may
j stem from and gain impetus from the failure and break up
164
of countervailing power. In addition, the failure to
recognize that there are different types of inflation and
that expansion-pressure inflation is a necessary hy-product
of an expanding economy may lead unnecessarily to a super
vised national wage policy.
The author rejects a supervised national wage pol
icy in peacetime on the grounds that it would he a detri
ment to countervailing power which works in a period of in
flation (specifically expansion-pressure inflation) even
though Professor Galhraith, the father of this concept,
says it will not. The author contends that Galhraith does
not recognize expansion-pressure inflation, hut only sees
cost-push inflation.
It appears that a cost-push inflation seems to
imply that a nation*s economic growth and development would
be retarded, weak, or would be almost nil whereas under
expansion-pressure inflation the economy's growth would he
virile and obvious.
A supervised national wage policy also is rejected
because it would mean the unnecessary use of direct con
trols which have been accepted by some pessimists as a
panacea for the control of inflation. If the economy is
experiencing an expansion-pressure inflation such controls
would be a deliberate and unwise strangling of the econo
my’s growth and development.
Furthermore, the use of direct controls would be an
-------- — --------------------------------------------- 165“
encroachment upon the freedom of business and labor unions
to conduct their own affairs and to solve their own prob
lems. In addition, the use of such controls implies that
the government or one of its agencies knows best how to
handle the affairs of these groups or individuals. It is a
false and dangerous assumption to make that a government,
composed of men, is omnipotent. A government is a means to
an end and not the end per se.
In conclusion, it should be pointed out that direct
controls have not been as successful, even during wartime,
as those who would be willing to rely upon them during
peacetime like to imply. Direct controls should not even
be considered until all other efforts fail to induce the
practice of social responsibility by these economic power
groups. All efforts have not been exhausted. We have not
even scratched the surface. It is not a job for men with
faint hearts. Faint-hearted men who tend to see only evils
in the capitalistic system and generally find it hard to
criticize an authoritarian system except possibly for the
methods used by some of the authoritarians.
In regards to a voluntary national wage policy, th€
author believes it would be unnecessary if a countervail
ing—power wage policy is adopted. Both would perform the
same service, but there would be more freedom through the
latter and no need for the creation of an agency.
If business and labor unions realize the need for
, 166
social responsibility and begin to practice it in conjunc
tion with collective bargaining, a voluntary national wage
policy would be redundant.
Recomroendat ion— a countervailing-power wage policy,
The hope of the American economy in peacetime is a counter-
vailing-power wage policy involving big business, big labor
unions, and big government. A wage policy based on the
recognition that power begets power. A wage policy that is
analogous to the check and balance system set up in our own
political system designed by men who recognize that men
seek power to control other men unless checked.
One group gains power, but another group evolves
because of that power to eventually offset the power of the
initial group. Both are dependent on eaeh other. One can
not survive without the other.
The American economy is an economy based upon the
interdependence of business, labor, and government. All
three are consumers. None can exist without the others.
Business needs labor to produce goods so that profits can
be made and wages paid so that both can consume what is
produced. Without profits and wages government has no
source of revenues and cannot protect the citizens, that
is, in a system such as our own— a republican form of
government and a capitalistic economic system. In an
authoritarian society this is different.
If one of these economic groups carries its self
, ---------------------------------------------------------- r67~
interest to such an extreme that it threatens the existence
of other groups, it reveals its lack of understanding for
the need of social responsibility. It also reveals either
this group’s deliberate and calculated efforts to destroy
the system because it believes in another system.
It is to the mutual benefit of all concerned that a
countervailing-power wage policy be followed in the Ameri
can economy. Why? Beeause it is realistic in that it
recognizes men and groups as seekers of self interest and
power which unintentionally promotes the interest and power
of other groups which in turn creates a check on the power
of all groups. This is balance.
But the key point in this type of wage policy is
that in seeking one’s own self interest one must remain
cognizant of responsibility to others. To use an analogy,
we have entered into a mutual agreement, which we call
government, to protect our rights. We have legislated laws
to ensure this protection of our rights by protecting our
selves from each other. We not only have our rights, but
we have a responsibility not to infringe upon the rights ol
others in the pursuit of our own. Responsibility is
learned, not legislated. Legislation is only a means to
making u^ cognizant of our responsibilities and it also is
a device used in the learning process to teach us human
relations•
In conclusion, if the American economy is
168
experiencing an expansion-pressure inflation, it appears to
the author the countervailing-power wage policy will work
i
both as an incentive to further economic growth by stimu
lating both management and labor and at the same time work
as a check to keep these two economic power groups respon
sible to the nation.
The author contends there are two factors that tend
to support the thesis that expansion-pressure inflation is
the general type of inflation that is being experienced in
the United States. First, the postwar figures of heavy
expansion expenditures in United States industry seem to
indicate expansion is the general source of inflation.
15
Second, the concept of basic inflation, if true, tends to
support this thesis.
American capitalism remains untested as to its true
potential. Someday it may be put to the test, that is, if
it is not scrapped due to ignorance, greed, or faint hearts
1 ^
See Chapter III. The concept of basic inflation
is based upon the changing value of money, or purchasing
power, with the trough of the Great Depression as the base
year. The author contends that basic inflation occurs the
moment expansion begins and he accepts the revival period
as a period of expansion based on a two-phase business
cycle (expansion and depression). In addition, basic in
flation prevails even during expansion-pressure inflation
or cost-push inflation as an added source of whatever type
of inflation a nation is experiencing.
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Papers submitted by panelists appearing before the
Joint Economic Committee, 85th Congress, 2d Session.
Washington: Government Printing Office, March, 1958.
. Relationship of Prices to Economic Stability and
Growth. Hearings before the Joint Economic Committee,
85th Congress, 2d Session, May 12, 13, 14, 15, 16, 19,
20, 21, and 22, 1958. Washington: Government Printing
Office, July, 1958.
. The Relationship of Prices to Economic Stability
and Growth. Commentaries submitted by Economists from
Labor and Industry appearing before the Joint Economic
Committee, 85th Congress, 2d Session. Washington:
Government Printing Office, November, 1958.
_______. Relationship of Prices to Economic Stability and
Growth. Hearings before the Joint Economic Committee,
85th Congress, 2d Session, December 15-18, 1958.
Washington: Government Printing Office, February, 1959.
D. PERIODICALS
Cerami, Charles A. "This Approach Speeds Problem Saving,"
Nation*s Business. VL (May, 1957;.
"Cow Kicker," Time Magazine LXXIII (March 30, 1959).
173
Gallaway, Lowell E. "The Wage-Push Inflation Thesis, 1950-
195 7.” The American Economic Review. XLVIII (Decem
ber, 1958X7
"Is the Dollar in Trouble?” U. S. News and World Report,
XLV (December 26, 1958). ~
Wallace, Robert. ”The Perils of Being Too Thrifty,” Life,
XLVI (March 30, 1959).
E. DICTIONARIES
Sloan, Harold S. and Arnold J. Zurcher. A Dictionary of
Economics. Third edition. New York:: Barnes and Noble,
Inc., 1953.
Webster, Noah. Webster’s International Dictionary.
Second edition. Vol. I. Springfield, Mass.: G & C
Merriam Company, Publishers, 1940.
P. PAMPHLETS
Burns, Arthur P. "Prosperity Without Inflation." Buffalo,
N* Y.: Smith, Keynes and Marshall, Publishers, 1958.
Chamberlin, Edward H. "The Economic Analysis of Labor
Union Power." Washington, D. C.: American Enterprises
Association, 1958.
"Defense Against Inflation: Policies for Price Stability
in a Growing Economy." New York: Committee For
Economic Development, 1958.
"The Relationship of Prices to Economic Stability and
Growth." Reprinted from Joint Committee Printing,
October 31, 1958, 85th Congress, 2d Session. Washing
ton, D. C.: American Federation of Labor and Gongress
of Industrial Organizations, 1959.
174
G. UNPUBLISHED MATERIALS
Dunlop, John T. "American Wage Determination: The Trend
and Its Significance." Paper read to the Chamber of
Commerce of the United States Economic Institute on
Wage Determination and the Economics of Liberalism,
January 11, 1947.
"Lord Beveridge’s Second Thoughts." Letter of the First
National City Bank of New York, April, 1957.
Pollard, Spencer. "Three Kinds of Inflation." A Talk
Presented to the Faeulty Club of the University of
Southern California, Los Angeles, March 12, 1958.
(Mimeographed.)
H. NEWSPAPERS
Brozen, Yale. "Inflation’s Real Roots," The Wall Street
Journal, LX (March 30, 1959).
Chamberlin, William Henry. "Planned Inflation," The Wall
Street Journal, LIX (November 12, 1958).
Moley, Raymond. "Spend-Yourself-Rich Advocates Create
Inflation, Not Prosperity," Los Angeles Times, March
12, 1959, Part III.
Shea, George. "A 'Cost-Push* Theory of Inflation," The
Wall Street Journal. XX (March 3, 1959).
"The Outlook," The Wall Street Journal, LX (March 16,
1959).
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Asset Metadata

Creator Cunningham, Benjamin H. (author)

Core Title Inflation and a national wage policy in peacetime

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,economics, labor,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Garis, Roy L. (committee chair), Anderson, William H. (committee member), Pollard, Spencer D. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-455273

Unique identifier UC11264333

Identifier EP44770.pdf (filename),usctheses-c20-455273 (legacy record id)

Legacy Identifier EP44770.pdf

Dmrecord 455273

Document Type Thesis

Rights Cunningham, Benjamin H.

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA