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.
The post appeared first on Econlib.
From the first paragraph of Paul Samuelson's Wikipedia: "When awarding the prize in 1970, the Swedish Royal Academies stated that he 'has done more than any other contemporary economist to raise the level of scientific analysis in economic theory'. Economic historian Randall E. Parker has called him the 'Father of Modern Economics', and The New York Times considers him to be the 'foremost academic economist of the 20th century'." I am tempted to challenge you to write a post praising the contributions of Paul Samuelson. Do you think his contributions outweighed his faults?
Mises said, in my words, that the claim that inflation is a price rise is a rationalization of the evasion of govt counterfeiting as inflation. Price rises are the result. He also said that govt counterfeiting shifts production from market-directed to politics-directed. And that this shift lowers production more than price rises.
Trash the Fed. Back to private commodity money, including money certificates redeemable in a commodity.