Comment From a Not Quite Empty Box

Abstract

The papers on monetarism in the first fifty-seven pages of the March I98I issue of this JOURNAL are so decorous, temperate, and occasionally elegant that one hesitates to intrude on so stylish an occasion. But the issues of theory and policy not gripped by the debate are too important to ignore and I have, therefore, decided to intervene. I shall define myself initially as a non-Keynesian and non-monetarist for whom James Meade provided only a questionable empty box. I have long since concluded that both theoretical frameworks are grossly insufficient for the serious analysis of historical and contemporary problems. My general proposition, as stated elsewhere, is this:' ... both neo-Keynesian and monetarist analyses of prices and output are conducted essentially within a Marshallian short-period framework or with the long-period factors exogenously determined and treated as fixed trends. This is not only an unsatisfactory way to go about the analysis of the pre-i914 world; it is also a grossly insufficient way to deal with the world economy of the 1970S and I98os where radical shifts in relative prices have occurred and are likely to continue to occur, where many major economies have experienced deceleration in the rate of productivity increase, and where radical changes in the direction of investment will be required to reachieve structural balance and resumed rapid growth. In this compressed comment I shall merely illustrate this proposition with four observations and draw a conclusion. (i) None of the contestants deals with the short-run behaviour of productivity in relation to the rate of inflation. As Table i and Fig. i demonstrate, for the United States at least, the systematic counter-cyclical behaviour of productivity, set against the stickiness (or counter-cyclical behaviour) of money wages, has rendered each of the three US exercises in purposeful monetary restraint (I969-70, 1974-5, and 1979-80) counterproductive. Unit costs and the inflation rate rose in response to recessions induced by monetary policy;2 and the sequence of recessions induced a decelerating trend in the rate of productivity increase. (2) None of the contestants deals with the role of trend movements (or even short period movements) in the relative prices of basic commodities and their implications for output, real