ABSTRACT
Comprising Wage-Fixing (first published 1982), and Demand Management (first published 1983) this two volume reissued set is a vital and stimulating analysis of the causes and consequences of stagflation – a paralysing combination of mass unemployment and rapid inflation which affected a variety of economies across the developed world in the 1970s and early 1980s.
Wage-Fixing, written by James Meade, deals primarily with the needed reform of wage-fixing institutions, contrasting the Great Depression of the 1930s with the Great Stagflation of the 1970s. Meanwhile Demand Management is devoted to the design of fiscal, monetary and foreign exchange-rate policies for the control of the money demand for the products of labour. This volume deals with the theory of demand management, feedback control and the creation of a dynamic model of the UK economy.
Written in clear and accessible language, this reissue will appeal to the general reader as well as students of economics and professional economists. It should be required reading for all those who wish to learn the lessons of the Great Stagflation of the 1970s to avoid a repetition in the current economic climate.
TABLE OF CONTENTS
part |2 pages
Part One The Policy in Theory and Practice
chapter I|1 pages
Introduction
work is concerned with the nature, the causes, the consequences and the cure of stagflation, that ugly state of affairs in which the economy is both stagnant with heavy unemployment of people and other resources and also simultaneously suffering from a rapid inflation of money costs, prices and incomes. Already in the introductory chapters of an earlier
chapter II|1 pages
The Case for
Demand Management of the present enquiry is to examine the feasi- of applying financial policies effectively for what we have called the of keeping the of labour on a steady growth path.
chapter |2 pages
of New Keynesianism is the suggestion that
* An even more important factor tempering the use of financial policies exclusively
chapter 3|6 pages
The Effect of the Oil Crisis
funds from which contractual earnings can be fInanced may be relied upon to grow at a steady rate, neither more nor less rapidly than, say, 5 per cent per annum. Such contractual incomes are in respect of resources used domestically, which suggests that item 9 of Table 111.1 should be excluded. contracts are in respect of incomes, which are, of course,
chapter 6|4 pages
Conclusions
of A at a level that commands a real income of a in terms of general purchasing power so that they set a price Pat = aPt where P what they expect the general price level to be during period t. Suppose they expect the general level of prices to rise at the rate at which it rose in the last period, then
chapter IV|2 pages
Three Financial Weapons: Fiscal, Monetary and Foreign-Exchange Measures
of Time Lag of fiscal,
chapter |2 pages
already considered the effect of a changing rate of foreign
exchange-rate variation will had no real effect; it will simply offset the monetary effects of a difference in the rates of inflation of money prices. Second, it is possible that the rates of general price inflation do not differ in the two countries. In this case, a depreciation of the pound by increasing the number of pounds needed to purchase a given amount of foreign currency would raise
chapter V|2 pages
The Marriage of Weapons and Targets
of the wage rate to promote employment and the use of financial of money incomes) to a Cross-Linked
chapter |2 pages
of trade will
if the of the game were applied without modiflcation during the of working out its ultimate benefIcial effects. Suppose to be raised
chapter |4 pages
on the balances of trade, the foreign investment
of money incomes. We reached this conclusion primarily of the nature of the wage-fixing problem, the solution of which of decision-making on principles that can
chapter |1 pages
of the UK economy.
of the rate of tax, the rate of interest and the rate of foreign exchange on the lines described earlier of tax to the control of of interest and the use of of payments, and the exchange
chapter VI|1 pages
Discretionary Interventions
of financial policies for the control of the system outlined in of the preceding chapter involves the formulation of rules for of tax rates to keep the total of domestically of the foreign-exchange rate to keep the balance of payments
part |2 pages
Part Two Rerunning History
chapter VII|1 pages
CHAPTER VII
Historical of the Exercise of this book describes our attempts to 'tryout' the policies that
chapter VIII|4 pages
Results of the Rerun
VIII.l-VIII.8 show how the economy might have developed over of the policies that were in fact applied. Figures
chapter |6 pages
the last years of the 1970s onwards without there being any very marked difference between the performance of the two Control Runs. The unemployment percentage remains somewhat above the target level of 3.76 per cent after 1977 in both cases. This is to be expected for the following reason. In so far as the Money GDP excluding North Sea oil is successfully kept on its target growth path of 13 per cent per annum and far as the proportion of the national income going to wages remains
Keynesian policies had been in operation this shift to profit would not occurred. (See note t at end of chapter.) Otherwise the unamended operation of these policies in this period would have had undesirable consequences. Figure VIII.3 shows movements in the balance of payments on current
chapter |4 pages
after 1974. From 1972 to 1974 the Control Run values of the rate of money earnings are slightly above the steady 13 per cent per annum growth because unemployment is below 3.76 per cent, as shown in Figure VIII.2. But from 1976 they are continuously falling (that is to say, the rate of money earnings is continually growing at something less than per cent per annum). This is a representation of the phenomenon that
they are very sensitive to actual price movements, then there can be great fluctuations, indeed possibly explosive fluctuations, in a wage-price spiral. Thus if a rise in the level of prices caused a corresponding extra rise in wage rates, which turn raised costs and prices and so raised still further the level of prices, there could be a marked upward spiral of inflation.
chapter |4 pages
per cent between the two dates. This put a strain on real resources equal to 7.8 per cent of the 1972Ql GDP. two respects both the Base Run and the Control Run are assumed to
1972Ql are needed to keep the balance of trade in equilibrium. brief, the Control Run indicates an increase over 1972 in total resources available for domestic use equal to 28.6 - 7.8 = 20.8 per cent of the 1972 GDP, whereas with the Base Run the corresponding ftgure is only 12.6 - 10.7 per cent. The Control Run thus has approximately
part |2 pages
Part Three Some Administrative Problems of Fiscal Control
chapter IX|1 pages
The Use of Indirect Taxes a Regulator
of the practical if rates of tax were to be varied frequently and of total money expenditures on
chapter |6 pages
of a tax change depends also upon the
of principle is important. on domestic consump- of tax at any given
chapter X|2 pages
The Use of Income Tax
as a Regulator 1973-80 income tax revenue varied between 12 per cent of net national income at factor cost; in the same period 32-42 per cent of total tax revenue (including national
chapter XI|9 pages
The Use of a Wages Tax as a Regulator
of achieving regulator powers in of wages. It first examines whether variations in the surcharge on
part |2 pages
Part Four The Derivation of Control Rules for Economic Policy
chapter |4 pages
of deciding how should be modified to keep the economy 'on target' ,
of the deviations and of and will be small, then we can of the approximation -a--. -i + -a--. -i + a -a--. = = = = oZ,
chapter |2 pages
of and dinstead of dk. For consistency of notation, the
of feedback systems are greatly illuminated by of equation (15)),
chapter |6 pages
of the
+ bnz-n)u(z) + (alz-+ + anz-n)y(z) (25) (26) = Izn-alzn-1- of the appropriate dimensions. Since A(z) is a square = (27)
chapter |4 pages
of the disturbances may be greatly reduced, by choosing the
of good of the reference variable is obtained, since 3y(z )/3r(z) I in this if no feedback control = 0), then one incurs the cost that I, but
chapter |2 pages
of outputs. Both p(z) and G(z) become 2x2 matrices in
of the policy presented in Chapter XIV is that of policy P12(Z) and (z) can certainly be used to try to
chapter |2 pages
of the disturbance is actually exacerbated if
of frequencies -of the Nyquist stability theorem - if IG(eiW)P(e if the loop gain is rather it can be of more than 2 (approximately). This suggests that one should
chapter |10 pages
of response and on stability margins,
of stability, underdamped dynamic characteristics, and, possibly, of exogenous disturbances over a large range of frequencies, of policy
chapter XIV|1 pages
The Design and Performance of
1. Introduction of policy rules will be presented. of these sets - to give some indication
chapter |4 pages
It is possible to make direct comparisons of the deviations of the
of unemployment of 1 per cent, this of wage flexibility
chapter |4 pages
3.0 -4.0
of two- of these rules is that the movement of the of employees' national insurance contributions in of Money GDP is only half of that of the exchange rate are
chapter |10 pages
target value. In other words, the purpose of the derivative action is to prevent the controlled economy from being excessively underdamped. The of k and kn, as well as of the 'shaping' operators tf>(z),
0.571 (as in Table XIV.1), but by 1.03 per cent if k Equally important the effect that the kterms have on the loop gain at high frequencies (Le. in the region of w = At these frequencies the loop gain should be low as possible in order to minimise futile instrument move- ments, which have chance of affecting the outputs beneficially.
chapter |2 pages
of disturbances and
if the oscillations are very slow. For example, if the price of imports of the balance of payments is effective if the period of oscillation is longer than ten years, even if the (faster)
chapter |2 pages
of financial assets (NAFCO) is equal to company
of self-employed (ES) is treated as exogenous (see Treasury, (1» and income from self-employment (SE) is of GDP at market prices (GDPM*) after
chapter |14 pages
of the private sector (NW) is given by last quarter's net wealth
of personal disposable income (YPDY*) less expenditure on non-
