Leapfrog!
Cost-push? Or too much money? Old questions about rising prices remain far from settled
From the beginning, the thing that puzzled me was the way the experts talked past each other, or, more frequently, didn’t talk at all.
I explained last autumn how a magazine assignment in 1975 immersed me in the Seventies debate about inflation and led me to 700-year index of wages and prices in England. An unreversed “price revolution” in the sixteenth century was its central feature. Immediately I had turned to rival experts on the period, both emeritus professors at the University of Chicago. As I wrote in November,
It turned out that the facts of the price revolution were well-established, and had been understood in a certain way since Jean Bodin, in 1556, first pointed to the influx of New World gold and silver.
In 1934, Earl J. Hamilton has published American Treasure and the Price Revolution in Spain, 1501-1650; in 1940, John Nef had produced The Rise of the British Coal industry, in 1929; Industry and Government in France and England 1540-1640, in 1940; and War and Human Progress: an essay on the rise of industrial civilization, in 1954.
Here were champions on opposing sides of the long-running argument about the price revolution. Some years late I learned that Joseph Schumpeter in his monumental History of Economic Analysis had characterized the difference of approach as between monetary and real analysis. I was dimly aware the gulf existed because I had began learning economics by reading two little books published in the 1920s, before John Maynard Keynes entered the debate: Money, by Sir Dennis Robertson; ’and Supply and Demand, by Hubert Henderson.
Schumpeter’s dichotomy was comforting because it periodized the controversy. Monetary analysis had thrived in the seventeenth an early eighteenth centuries, he had written; the, starting with Adam Smith, real analysis of supply and demand had eclipsed money for well over a century.
By 1975, the argument had again become front-page news. Inflation was surging. Why? Was the Federal Reserve Board imprudent in its conduct of monetary policy? Or were “cost-push” factors, OPEC price hikes and costs of its America’s Great Society and its Vietnam War forcing the hand of the Fed?
Alas, neither Hamilton nor Nef were of much use in writing about the issue in the present day. Both men had been born in 1899. Hamilton was a member the university’s famous department of economics; Nef, a cultural historian, a member on its Committee. Only later did I come to understand what was implied by the distinction.