ABSTRACT
This chapter explores the underlying rationale for incomes policies in an analytical-cum-historical perspective. The natural starting-point is with the legacy of the Keynesian revolution in macroeconomic thinking, which it is convenient to label, borrowing a phrase from Hicks, the wage theorem' view. Views among economists about the role for incomes policies have evolved in conjunction with views about the determination of wages in a market environment. Inflation control is a costly business. A specific form of incomes policy suggested by the expectational argument is that of indexation. The rationale is that an offer of indexation can buy out' the incubus of unduly high inflation expectations, and so reduce the employment and output cost of an inflation control programme. Everything in the General Theory is done in terms of variables measured in wage units' which Keynes intended to be taken, most of the time, as the same thing as working in real terms'.
