What Samuelson Said About Inflation in the 70s
New Keynesian economics has been around for so long that it’s hard to remember what Old Keynesian economics was like. Here are two quotes (via Garett Jones via Robert Hetzel) from Samuelson to remind us of the days when Dinosaur Keynesians walked the earth:
Paul Samuelson embraces reverse causation – inflation usually causes monetary expansion, not the other way around:
One is forced by the facts of experience into an
eclectic position….[E]xplanation of the varied pattern of ongoing experience
[with inflation] calls for bold combination of causations….Microeconomic
commodity inflation–whether in food, in fuels, or indeed in any important
sector of the domestic or international economy–refuses to remain
microeconomic….Monetary expansion…is typically more the result than the cause
of sustained general inflation, simply because…central bankers…must be
accommodative and avoid policies that would acutely worsen short-run
unemployment and stagnation problems.
And here’s Samuelson on what it would take to disinflate:
Today’s inflation is chronic. Its roots are deep in the very nature of the
welfare state. [Establishment of price
stability through monetary policy would require] abolishing the humane society
[and would] reimpose inequality and suffering not tolerated under
democracy. A fascist political state
would be required to impose such a regime and preserve it. Short of a military junta that imprisons
trade union activists and terrorizes intellectuals, this solution to inflation
is unrealistic–and, to most of us, undesirable.
These quotes aren’t hard for me to believe – after all, I learned my Econ 1 from Samuelson’s 1989 textbook which told us that “the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive“! But if you’ve come to the econ game a little later, and can’t believe the stories about the Bad Old Days, you ought to.