Robert E. HallRobert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics - Stanford University
1977, No. 2
WHILE “SUPPLY SHOCKS” in oil and food are widely agreed to have aggravated inflation in many countries in 1973-75, no consensus has yet emerged to explain the acceleration of inflation between the mid-1960s and 1970-72 in the major industrialized nations outside of North America. Instead, two major schools of thought, the “international monetarist” and the “wage push,” have developed alternative explanations having radically different policy implications. The first group views inflation within a conventional macroeconomic framework as an “international monetary phenomenon” and identifies its fundamental cause as an excess demand for commodities generated by government actions. Any attempt to bring in other factors, particularly those of the wage-push variety, is dismissed. Adherents of the wage-push or “sociological” school of thought disagree, pointing to the allegedly spontaneous wage explosions that occurred in a number of European countries in 1968 and 1970 as evidence of the special noneconomic character of the recent inflation. Wage claims are viewed as part of a continuing conflict over income shares among competing social groups, and the events of the 1968-70 period reflected labor’s “long-smouldering resentment and dissatisfaction.”
