1 Inflation, the State and Economic Policy

Notes

1 . Since the outbreak of the crisis in 2007–08, this may seem less true, since deflation has been more of a threat than inflation. But I see nothing to suggest that inflation will not again become a priority when it returns, though there may be more readiness to accept results closer to the higher bounds of the targets. Indeed, the counter-inflationary imperative is still much in evidence despite widespread stagnation, particularly in the reluctance of eurozone authorities to engage in quantitative easing and the urging of many commentators and some policymakers to start raising interest rates while employment remains well below potential. 2 . Borland and Kennedy (1998) survey unemployment over the whole of the 20th century. 3 . There had been short periods of negative real growth in that time, particularly in 2000–01, when unemployment rose by a full percentage point (from around 6 to around 7 per cent). 4. See the collection of essays in Arestis (2007a), especially Arestis’ own chapter (Arestis, 2007b). For a specific discussion of ‘new consensus’ monetary policy, see Arestis and Sawyer (2008). Wren-Lewis (2007, p. 43) writes: ‘Twenty years ago, a standard way to teach macroeconomics was to contrast alternative ‘schools of thought’. There was a Keynesian approach, a Monetarist approach, a New Classical approach and so on ... Nowadays macroeconomics, at least at the more advanced level, is taught in a very different way. Different schools of thought have largely disappeared. Instead we teach students that in macroeconomics, as in microeconomics, there is a main- stream core ... ’ This has been claimed both as the ‘triumph of monetarism’ (DeLong, 2000), and the ‘triumph of Keynes’ (Dalziel, 2002). The extent of the effect of the global financial crisis of 2008–09 on the consensus remains to be seen. 5 . Bernanke has also famously argued that better policy was responsible for the ‘Great Moderation’ (after Stock and Watson (2002)) between the mid-1980s and mid-2000s. But he tells a more nuanced story, giving credit also to structural change and good luck, arguing only that good policy (again defined in terms of the Taylor rule) ‘deserves more credit than it has received in the literature’ (Bernanke, 2012, p. 159). For a critique of the idea of a ‘Great Moderation’, see Quiggin (2012, pp. 5–35). 6 . Australian national government spending (including payments to the states) has shown no trend since the 1970s, fluctuating counter-cyclically around 25 per cent of GDP (Laurie and McDonald, 2008). 7 . Note that the systems have quite different geographical extents. The economic system is a global system, a world market, though forces of competition and exchange relations are disrupted by national boundaries and other geographical factors. States, on the other hand, are territorial.

278 Notes 279

8. For a thorough account of the reception of Keynesian ideas by Australian economists and policymakers before the war, see Millmow (2010). He argues that ‘Australian economists came to achieve a superior command of Keynesian statecraft arguably earlier than most of their overseas counterparts’, though ‘the new economic thinking articulating a coherent form of macroeconomic management ... raced ahead of political convention and attitudes’ (Millmow, 2010, p. 4). 9. Even these variables grant too much control to the authorities – in reality fiscal stance is somewhat unpredictable, given its two-way causal interaction with private expenditure flows, and even the central bank’s control over the base rate can come into question, while its effectiveness over other rates and quantities is uncertain and shifting. 10. In fact he distinguishes between ‘qualitative policy’ ‘in which the structure of the economy is changed’ and ‘reforms’ in which changes affect ‘spiritual aspects or relations between individuals’, but it seems to me that this is a difference of magnitude rather than kind. Examples he gives of the former include rationing of goods or foreign exchange, welfare measures, changes to tariff structures and anti-monopoly legislation, and his examples of the latter include the introduction of a full-scale social security system, nationalisation and industrial democracy (Tinbergen, 1966, p. 149). 11. ‘This may be so for physical reasons: if government building activity were an instrument, this activity cannot surpass the production capacity present in the relevant industry’ (Tinbergen, 1966, p. 59). 12. Radical political projects aiming to fundamentally alter the economic system face an extremely formidable challenge on this front, in that any single reform incompatible with overall cohesion is likely to be ‘rejected’ by the system as a whole; everything needs to change before anything in particular can. This is what I meant by the idea that the ‘new macroeconomic consensus’ or ‘neoliberalism’ might be a local maximum without being a global maximum: it may be hard to find a viable political trajectory from one politically and economically functional ‘equilibrium’ to another, even if the latter is preferable, because the situations in between are economically dysfunctional and tend to generate political crisis.

2 ‘External Balance’ and the Counter-Inflationary Imperative

1. As McKinnon (1993, pp. 3–4) notes, under the gold standard, governments that suspended were expected to restore convertibility as soon as possible, and at the old parity, and governments did strive to meet this obligation even at high deflationary cost. But it was an ‘implicit’ rule, not a formal imposition by international agreement, as with the Articles of Agreement from Bretton Woods. 2. This phrasing is not from the delegation itself, but from the commentary of Australia economist Edward Shann (quoted in Turnell, 1999, p. 90). The British Government resisted calls for increased public works expenditure and the British Commonwealth declaration at the World Economic Conference focused on monetary measures (Ib id., p. 92). 280 Notes

3 . Keynes himself seems to have found the Australian push annoying. In April 1945 he wrote a letter to his old friend TS Eliot: ‘Not so long ago I was at a conference where the Australians urged that all the Powers in the world should sign an international compact in which each undertook to maintain full employment in their own country. I objected on the grounds that this was promising to be “not only good but clever” ... Insufficiency of clever- ness, not of goodness, is the main trouble’ (quoted in Markwell, 2000, p. 59). Earlier, Keynes had complained to a British Treasury official that in 1942 talks with the United States Treasury the Australians ‘seem to have wasted a good deal of time discussing full employment and came away not known very much more about it all than they knew when they went in’ (quoted in Turnell, 2002, p. 116). 4. White was also later publicly accused of being a Soviet agent and appeared before the House Un-American Activities Committee in 1948, days before his death. Decrypted KGB messages, declassified in 1995, suggest he did indeed pass classified material to the Soviet Union. Skidelsky (2000, pp. 256–63) reviews the evidence and provides context. 5. The volume of available reserves do not quantify the ‘room to move’ precisely. A secondary impact of the quota system was to augment the effective reserves over the world as a whole, reducing the impulse to hoard gold, US dollars, or sterling. It spread them further by centralising some currency reserves so that they could be advanced to whichever country needed them – rather than being confined to national vaults. Probably more important than the quotas themselves was the great expansion of the world’s dollar supply from the large American payments deficit that unexpectedly opened up in the 1950s. Australia would have benefitted from some expansionary effects of Bretton Woods whether or not it joined the system. Conversely, had the Clearing Union plan prevailed, the extra liquidity it provided might have facilitated a higher rate of world inflation and eroded some of the real value of the extra reserves it promised. 6. It was only in this period, also, that holdings of gold scattered among private banks were centralised into the Commonwealth Bank reserve; foreign exchange was centralised at the outbreak of war in 1939 (Schedvin, 1992, pp. 52, 59; Bell, pp. 9–11). 7. Private foreign exchange dealers might also make accommodating payments in the short term, but would ultimately turn to the central bank to restore or discharge inventories. In practice, in Australia in this period, foreign exchange was centralised at the central bank, and the trading banks held only small working balances. 8. In the case of public transactions, it might be hard to distinguish in practice between ‘accommodating’ public international borrowing for the purpose of shoring up foreign exchange reserves, and ‘autonomous’ borrowing for other purposes, since external balance mixed with other policy goals. 9. Earlier work by Robinson (1937) and others had begun this integration, but Meade’s book gave it a full systematic exploration. Metzler (1948) surveys international macroeconomics before Meade. 10. Because of the delayed publication, Swan was not always recognised as the originator (Arndt, 1976; Metaxas and Weber, 2013, p. 2). Notes 281

11. For an extension of Swan’s approach to a model allowing for some endogenous impact on the terms of trade, see Salter (1959, pp. 233–36). The consensus of the literature was that such a case was not relevant to Australia, though it might be to Britain, where a substantial proportion of exports were manufactures with domestic cost-driven prices (Corden, 1960, p. 19). 12 . Pearce (1961, pp. 3–4) discusses the price index problems. 13. Although it is defined with reference to import and export price indices, Swan often refers to the external price level as a price index of tradables – a broader concept including goods and services which are potentially but not actually traded – and thus whose prices are also affected by competition with foreign producers. Import and export price indices weighted by actual trade will not necessarily be a good representation of the broader class. 14 . In fact, according to Swan, the price level may be negatively related to demand where decreasing costs apply. But in full employment conditions, the relationship will be positive (Swan, 1960, p. 55). 15. Swan refers to a price level rather than a rate of inflation; this reflects the early post-war norm (see Chapter 5). But this need not imply that authorities aimed at a constant price level (zero inflation). 16. This dual definition of target output is symptomatic of an extremely important real tension, mentioned above in §2.1 and discussed further in Chapter 3: what if the level of output associated with full employment is not consistent with an absence of inflationary pressure? In any case, Swan treats it here as signifying an unambiguous aggregate output target – which means a value of Y given from outside the system by the technical and competitive structure of the economy. 17 . Under the ‘gold standard solution’ of a fixed exchange rate, market mecha- nisms are likely to take care of internal and external balance, but ‘only if money wages and prices are flexible to an unrealistic degree, and even then only at the expense of a corresponding violence in departures from the objective of Internal Price Stability’ (Swan, 1960, pp. 62–63). In other words, a fixed exchange rate means that either domestic wages and prices must carry the burden of domestic adjustment to shifts in the external price level, or full employment must be abandoned: the familiar impasse of the gold standard. 18. Swan’s other objective with the diagram was to show that it would not necessarily be easy for policymakers to read from the data at a single point in time what the correct policy should be. Say there is a balance-of-payments deficit and unemployment; then policymakers can infer that the cost ratio is too low, so that the money-wage needs to be restrained. However, the right demand response is ambiguous: it may not be easy to tell whether the situation is to the right of the sweet spot (calling for demand restraint also) or to the left (calling for stimulus) (Swan 1963, p. 387; Metaxas and Weber, 2013, pp. 31–32). 19 . Although Swan’s equation (1) may appear to already admit such a link, it is definitional rather than causal, and his discussion established causation running only the other way, since policy is presumed to sett demand while it targets output. 20. The rural dominance of exports should not be overstated: when sectoral contributions of value-added to exports are considered, the contribution of farming itself is much reduced, and domestic transport and commerce appears as a major ‘export industry’ (McColl, 1965, p. 70). 282 Notes

21. At their peak in 1952, these controls limited imports of Category A (deemed essential) to 60 per cent of 1950–51 values, and Category B (less essential) to only 20 per cent (Lundberg and Hill, 1956). 22. Note also that a substantial proportion of what was recorded as an income outflow did not in fact flow out of the country – it was undistributed income earned by companies owned abroad but retained and reinvested, so the ‘outflow’ in this category appeared simultaneously as an inflow on the capital account. 23. More than half of net apparent capital inflow 1947–50 was unidentified, but less than 20 per cent went unidentified by the 1960s (McColl, 1965, p. 95). Of the unidentified ‘balancing item’, some reflected errors and omissions of measurement elsewhere in the accounts, but it also included a substantial ‘effect of timing difference between the statistical recording of exports, imports, share transfers, etc., and the crediting or debiting of payments for these transactions against Australia’s international reserves’ (Commonwealth Statistician, quoted in Vernon e t al., 1965, p. 1087). One reason for the large proportion of unidentified capital inflows over the 1947–50 period was no doubt the deliberate use of these ‘leads and lags’ to speculate on a revaluation of the Australian pound (see §2.2.4). 24 . The statistics also count acquisition of government securities on the domestic market by foreigners – arguably better thought of as a private capital inflow – as official borrowing abroad, but this is in fact a small negative figure (that is, representing net sales by foreigners) in each year for which data is available in this period (Vernon e t al., 1965, p. 961). 25 . The fourth decline, in 1964–65, was less concerning because of the substantial preceding accumulation of reserves. 26 . The diagnosis of both kinds of problem was subject to change. Balance-of- payments problems were relative to available foreign currency reserves, that is, the size of the outflow relative to the stock. ‘Internal balance’ is treated in the Swan (1963) diagram as a single point, suggesting that full employment and price stability are compatible at the same level of demand for domestic output. I discuss the breakdown of this conception below and at length in Chapter 3. 27. There were also independent domestic factors. According to Auld (1967), the federal Budget of 1949–50 was the most stimulatory of the period between 1948–49 and 1963–64. On the political background to pre-wool boom fiscal policy, see Whitwell (1986, pp. 96–101), and Chapter 3 of this book. The Arbitration Commission also an increased the basic wage over and above the cost of living, and narrowed of the gap between the male and female basic wage, in an October 1950 judgement (Whitwell, 1986, p. 101), though as I discuss in Chapter 3, arbitration rulings were not a factor entirely independent from the macroeconomic conditions in which they were made. 28. Note, however, that the Australian and British pounds devalued 30 per cent against the US dollar in 1949. Lundberg and Hill (1956) discuss the Australian cost position relative to the British in some detail. 29. For a counterargument that Australian macroeconomic developments in the mid-1950s still had much to do with overseas connections, see Arndt (1957). Notes 283

30. Downing (1956, p. 5) argued that the policy was correct ‘as long as we are beset by the problem of excess domestic demand’ because ‘while excess domestic demand persists tariff and exchange rate adjustments would have to be carried to absurd lengths in order to limit our imports to what we can pay for ... [and] until we can eliminate excess demand, it is impossible to judge what long-term adjustments need to be made ... ’. Swan (1963, p. 389) argued that ‘attempts to maintain short-run equilibrium by movements in [the cost ratio] might involve violent and wasteful instability in the cost structure and distribution of incomes’, so that import restrictions were appropriate short-run instruments w hen the cost ratio was at an appropriate level over the long run. 31. In the event, a fortuitous spike in export prices and a good season of agricultural production in 1956–57 greatly helped reverse the flow of reserves – policy alone cannot claim the credit. 32. As shown in Figure 2.6, reserves continued to fall until March 1961, a loss of one third since the (local) peak in May 1960. The loss was less severe than that of 1954/55–55/56 in absolute terms and as a proportion of the peak, but it was more rapid, and in stemming it the government drew $156 million from its IMF quota, and negotiated permission to draw a further $89 million which was never actually called upon. IMF assistance had not been deemed necessary in the mid-1950s (Vernon et al., 1965, pp. 1089–90). 33. Industrial output was a fairly stable 25–30 per cent of Australia’s GDP across the period. Agricultural production fell from more than 20 per cent after the war (peaking at 29 per cent in the wool boom year of 1950–51) to less than 10 per cent by the mid-1960s. The gap was filled by the tertiary sector, including utilities and construction. Mining’s rise was yet to come. See data in Vernon et al. (1965, p. 628) and Norton and Kennedy (1985, p. 120).

3 Inflation and the Keynesianism of Restraint

1. Rowse (2002) has written the definitive biography of this central figure in Australian policy history. 2. As it happens, the book’s only acknowledgement of the consequences of dealing theoretically with a ‘closed’ economy uses Australian wage policy to illustrate: ‘If, as in Australia, an attempt were made to fix real wages by legislation, then there would be a certain level of employment corresponding to that level of real wages; and the actual level of employment would, in a closed system, oscillate violently between that level and no employment at all, according as the rate of investment was or was not below the rate compatible with that level; whilst prices would be in unstable equilibrium when investment was at the critical level, racing to zero whenever investment was below it, and to infinity whenever it was above it ... In the actual case of Australia, the escape was found, partly of course in the inevitable inefficacy of the legislation to achieve its object, and partly in Australia not being a closed system ... ’ (Keynes, 1936, pp. 269–70). 3. Firth revisited his 1951 paper with ‘second thoughts’ two-and-a-half decades later, arguing against the economists of the 1970s who believed that ‘it may be necessary to accept as “natural” a rate of unemployment a great deal higher 284 Notes

than the one or two per cent which used to be considered tolerable before 1974’ (Firth, 1977, p. 38). He was left making ‘the humanitarian case’ against a new understanding of ‘purely technical requirements’. 4 . On the tortured production of the document, see Butlin and Schedvin (1977, pp. 673–79). 5 . The central problem, signalled by anxiety about a ‘milkbar economy’, was that investment was being misdirected into consumer goods industries, because consumer spending was abnormally high and supplies from overseas temporarily disrupted, while capacity was not being expanded rapidly enough in basic industries such as steel, coal and building materials. Heavy industry was not keeping up because of geographical factors, housing and labour shortages, and was outbid for labour. Such bottlenecks in core industries raised input prices for consumer industries and aggravated inflation. The solution was to restrain consumer spending and encourage the redirec- tion of investment away from domestic consumer industries, which, in any case, were seen to have a bleak future once foreign competitors recovered and trade barriers fell, and once the burst of consumer demand pent up by the war was exhausted (Whitwell, 1986, pp. 86–87; Jones, 2003). 6 . On the inflexibility of public capital expenditure, see Coombs’s remark in 1948 that ‘our practical experience has been such as to doubt the wisdom of emphasising too much the “compensating” character of anti- depression programmes ... It is clear that Government investment programmes are much less flexible that we had hoped ... ’ (quoted in Whitwell, 1986: 95). In 1951, Douglas Copland spoke at a conference of ‘a law of increasing government expenditure based on political and social factors, which both political parties find it impossible to reject in the interests of economic stability’ (quoted in Whitwell, 1986: 102). 7 . For example, the Chifley government hid would-be surpluses of the Consolidated Revenue Fund (widely seen as a headline indicator of fiscal stance) by relabeling some income tax as social security contributions and placing them in a National Welfare Fund. Also, in its last three budgets the papers projected Consolidated Revenue Fund deficits, though actual large surpluses eventuated, and the projections are likely to have been deliber- ately pessimistic (Artis and Wallace, 1971b, pp. 414–15; Whitwell, 1986, pp. 90–93). As discussed further, the public statements are least reliable on the most important problem – the vexed question which forced itself forward in the course of the 1950s: should (and did) policy aim at less-than- full employment in pursuit of price stability? 8 . Samuelson (1975) gives an interesting history of the profession’s gradual real- isation of the balanced budget multiplier concept, initially counterintuitive: it was implicit in many early multiplier models, and independently ‘discov- ered’, that is, made explicit, by at least six economists by the mid-1940s before entering the textbooks. It was being discussed by US Treasury officials for policy purposes by 1944 or 1945 (p. 51). It would be very interesting to know about equivalent discussions within the Australian Treasury. 9 . Later rounds of revisionism tended to drop the earlier years of very patchy statistics: Nevile (1975) begins in the mid-1950s and Perkins (1975) begins in 1960. Since the 1980s it has been common to begin historical time series in the mid-1960s, from which point a much greater selection of statistics Notes 285

is available. I use Abbott’s (1996) figures for the structural surplus immedi- ately below, but I do not present his favoured indicator. The latter includes a wealth effect arising from the devaluation of outstanding government securities by general price increases, that is, an ‘inflation tax’, and accord- ingly finds policy to be more deflationary than earlier writers, to the extent that inflation occurred. I think he exaggerates the importance of this effect; the effect of such capital losses on aggregate demand is likely not nearly great as an equivalent decline in incomes. The Committee of Economic Enquiry (Vernon et al., 1965) might have been expected to make a sustained assessment of fiscal policy, but surprisingly it does not. Waterman’s (1972) economic history of the period has much of interest to say about fiscal policy in passing, as do Whitwell’s (1986) and Schedvin’s (1992) institutional histo- ries of the Treasury and Reserve Bank, but none of these develop a new theoretical framework for assessment. 10. Unfortunately, statistics on the division of receipts and outlays between general government and public trading enterprises are unavailable before 1960/61 (Foster, 1996, p. 70). 11. It does not cover the public sector as a whole, but does incorporate Commonwealth advances and transfers to the states and public enterprises, accounting for a large proportion of total public sector expenditure. Auld’s model assumes the states and public enterprises spend all these advances and transfers within the year. 12 . Artis and Wallace (1971a) make separate calculations for this year, according to whether this deduction and the associated next year’s credit are considered as tax changes or not (see Table 3.1). 13 . For examples of Keynesian astonishment, see Downing (1956, pp. 16–17) and Rowan (1956, pp. 206–07). 14 . Indeed, Auld (1967) finds the active fiscal adjustment (tax and expenditure changes) of 1955/56 very close in money terms to those of the ‘horror budget’ year, 1951/52: tax restraint was less severe, but public expenditure growth much lower. The automatic tax response meant that 1955/56 actually saw a larger fall in the multiplicand, and the fall continued in 1956/57. 15 . See, for example, Coombs (1959) and Arndt (1960a). 16 . In an earlier chapter, Keynes outlines the problems inherent in quantifying heterogeneous output, leading to his decision to quantify output in terms of the employment that produces it, and raising doubts about the concept of a price level, at least as a precise measure: ‘To say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth – a proposition not without meaning and not without interest, but unsuitable as material for the differential calculus’ (Keynes, 1936, p. 40). In the chapters discussing inflation this concern is set aside, and the differential calculus applied. 17 . Friedman (1972, pp. 930–31) complains that the formula connecting the set of elasticities is a truism. As Chick (1983, p. 283) responds, that is the point: they are a heuristic, the beginning of analysis rather than the end. 18. Keynes’s list actually has five items because he is listing reasons why prices might not rise in proportion to the quantity of money rather than to effective 286 Notes

demand. The other item is therefore: ‘Effective demand will not change in proportion to the quantity of money’. 19. Not every model of inflationary momentum delved into these possibili- ties for policy, or even mentioned the interaction of momentum with new shocks. But some did, such as that of the Australian Pitchford (1957), and it certainly figured in the intuition of policymakers and eventually in broader political discussions of inflation. 20. Hansen’s (1951) dynamic factor and goods market model, for example, popu- larised in the mid-1950s for inflation analysis by Turvey and Brems (1951) and others in the mid-1950s, might also appear as a milestone along the way, with its ‘quasi-equilibrium’ rate of inflation. 21 . Rate rather than share, because Machlup emphasises that increased replace- ment costs for fixed capital might motivate an attempt to defend the rate by increasing the share (Machlup, 1960, p. 131). 22. Statistical evidence for this proposition was contested, and different conclusions appeared to come from different definitions. Figures in the Vernon Report show a stability of the share of wages and salaries in aggregate income at factor cost between 1948/49 and 1961/62: except for the aftermath of the wool boom, it varies within a range of 2.6 percentage points. However, according to Laffer (1966, p. 239) these figures were later revised, and in 1966 three members of the Vernon Committee summoned to appear before the Arbitration Court accepted union submissions that the wage share had in fact declined significantly during this period, if primary production, mining and quarrying were excluded from GNP. See similar conclusions in Department of Labour and Immigration (1975) and Catley and McFarlane (1983, pp. 78–80). 23 . Before 1956, the Commonwealth Court of Conciliation and Arbitration. 24 . For historical overviews of the changing criteria by which arbitration judgements were made, see Hawke (1967); Laffer (1966); Isaac and Ford (1967) and Hancock (1969). 25 . ‘ ... at least some cause for doubting the judges’ understanding of basic economic and statistical material ... ’ (Isaac, 1954, p. 591); ‘ ... little above the level of amateur economics ... ’ (Corden, 1968, p. 4). 26 . See, for example, Karmel (1959, p. 351); Hancock, 1960; Vernon et al. (1965, pp. 142–43). 27 . Russell’s (1965) paper included an estimate of what the state of income distribution would look like had money-wages actually grown in line with labour productivity alone – a major transfer from the labour share to the farming sector. Unfortunately his estimate was based on some statistical errors, picked up by Whitehead (1967). See Harcourt (2001a, p. 58), who concludes that ‘the overall soundness of his argument remains intact’. 28 . Earnings also grew faster than award wages if there was a shift of workers into categories with higher margins above the basic wage. 29 . T he narrowing of the gap between female and male wages also raised this problem. 30 . Elsewhere in his paper Phillips also presents a chart of average hourly earnings, incorporating privately-negotiated over-award and overtime rates. He admits that this would be a more appropriate measure for his purposes, but uses the official wage rate index instead because the data are more complete (Phillips, 2000, pp. 269–70). Notes 287

31. Leeson (1994, p. 12) writes that ‘dozens of distinguished economists, writing in prestigious journals, rubbished the quality of the statistical work of the Phillips Curve authors, and drew attention to the list of omitted variables.’ Forder (2014, pp. 11–32) gives a full survey. 32. For a standard presentation of these two papers as the critical link between Phillips (1958) and ‘the Phillips curve’ of the 1960s, see Frisch (1983, pp. 30–89). Forder (2014, pp. 33–49) discusses in detail the misinterpretation of Samuelson and Solow (1960) as arguing for a stable Phillips curve, exploit- able by policy.

4 From the ‘Battle for the Banks’ to the ‘Credit Squeeze’: Monetary Policy in the Long 1950s

1. Cornish (2010) discusses a number of interpretations of when central banking can be said to have begun in Australia. 2. Chick (1983, pp. 129–31) suggests that volatility in the marginal efficiency of capital is behind the statistical evidence of a lack of relationship between the interest rate and investment. This continues to be a live issue even today (Kothari et al., 2014). 3. Bibow (2000) explores the role of banks in Keynes’ Tre atise (1930) and General Theoryy (1936) analyses of liquidity preference. He argues that Keynes assumes a constant money stock in the latter as an analytical device to concentrate his attack on the quantity theory. 4. Balance-of-payments surpluses (deficits) appear as positive (negative) contrib- utors, because they involved a net flow of reserves to (from) the banks in exchange for foreign currency. An increase in outstanding Commonwealth Government debt augmented bank liquid assets, except the extent that it was held by non-banks. The contribution from government borrowing was independent of that from changes in non-bank holdings of government debt: the stock of outstanding debt could remain steady, for example, and yet bank liquidity rise or fall due to changes in the demand for bonds from non-banks. This was the case whether non-banks dealt with the banks themselves, in which case bank holdings of government debt would change, or with the central bank, in which case bank cash reserves would change. The figure is based on annual data because data on some components are not available for shorter intervals prior to 1962. 5. Similarly, Governor Coombs wrote in 1954 that ‘if capital projects sought credit funds from the market [that is, outside the banking system] they would absorb some of the pressure being exerted by the swollen money supply and the discipline of having to go to the market would itself exercise a restraint on the more exuberant’ (Coombs, 1971a, p. 38). 6. In the course of the decade, central banking was progressively separated from the Commonwealth Bank’s trading and savings banking business. In 1959 the Reserve Bank Act confirmed the separation, establishing the Reserve Bank as central bank, and leaving banking business to the Commonwealth Trading and Savings Banks (Cornish, 2010, pp. 13–17; Vernon et al., 1965, pp. 952–54; Schedvin, 1992, pp. 156–66, 271–94; Bell, 2004, pp. 16–20). 288 Notes

7 . For a detailed explanation of why the ANZ Bank had difficulty meeting the LGS requests for much of the decade, see Merrett (1985, pp. 104–49). 8 . It should also be noted that official figures for retail instalment finance are under-estimates of total consumer credit because they do not include credit arrangements that do not involve regular, predetermined repayments, such as store credit accounts (see Vernon et al., 1965, p. 255). 9 . The exact figures are difficult to assess because of a lack of data before 1959 for instalment credit that was not defined as ‘hire purchase’. Figures show a decline in the share of hire purchase credit extended by retailed from just over one-third to one-fifth between 1944/45 and 1957/58, but with other types of contract included in the data the following year, retailers’ share is restored. Also, the official data makes no distinction between vehicle purchases – accounting for about half of instalment credit advances – by households and by firms. Runcie (1965, pp. 133–43) discusses the general sketchiness of the data. 10. The exception was the ANZ, which took the route of buying a 14 per cent stake in the market leader, the Industrial Acceptance Corporation. 11 . The ANZ, for example, was concerned about this, as it was suffering from a general decline in its share of overall deposits (Merrett, 1985, p. 120).

5 From Bretton Woods to the Float

1 . The others being the Peak Downs metals boom of the early 1870s, the Broken Hill ‘silver mania’ of the late 1880s, and the ‘gold fever’ of 1934–37. 2 . See, for example, the (very short) discussion of the Mundell framework in Perkins’ (1969) Australian textbook on international monetary economics: ‘In actual fact, however, the international flow of capital does not usually respond so perfectly to minor changes in the level of interest rates in one country as to offset completely the effects of efforts by that country to reduce its money supply (in order to raise its interest rates). Such efforts to raise interest rates are most likely to be frustrated in the case of a country with a very strong balance of payments, which is using monetary measures to restrain domestic inflation ... But if the country raising interest rates is doing so ... at a time when its balance of payments is somewhat weak, there may well be fears that the country may have to devalue, or that it may in future limit any subsequent repatriation of capital’ (Perkins, 1969, p. 49). 3 . See Whitwell (1986, pp. 163–68) on Treasury’s ‘desire to crush the report of the Vernon Committee’, and balance-of-payments projections as a weapon in the vendetta. 4 . Both the Committee of Economic Inquiry and Treasury found that the profitability of foreign investment had fallen substantially since the 1950s, and Treasury found the rate of return on foreign investment to be generally lower than that of domestic firms in the same industries (Vernon et al., 1965, p. 993; Treasury, 1966) This was good news so far as remittances were concerned, but raised the prospect that the inflow would slow. Johns (1967), however, in a more nuanced survey, argued that average profitability on foreign investment was a misleading aggregate, and that attention should be focused instead on specific competitive conditions in particular industries at Notes 289

a worldwide and local level. He finds the apparent decline in profitability to be localised in the petroleum and motor vehicles industries, linked in each case to industry-specific profitability declines, suggesting that it has no effect on capital attracted by promise in other areas, such as mining. Furthermore, he expands the motives for investment and reinvestment to include defen- sive and strategic outlays, so that present (or expected near-future) profitability is only loosely related to present investment. None of these studies gave much thought to other capital flows. Vernon et al. (1965, p. 276) record overseas purchases of government securities and portfolio investment in local companies (defined as investment not ‘implying control over the local company’), reporting that the former made up 8.3 per cent and the latter 13.2 per cent of total foreign investment 1948/49–1962/63. But the statistics pass without comment: nothing is said about which units did the investing or their motivation. The figures would include such investments purchased by foreign-owned firms, and should not be seen as necessarily involving cross-border transactions – but given that such firms were the first units in a position to make international comparisons and act upon them relatively conveniently, this is precisely the origin of ‘short-term capital mobility’. 5. Choices about which price indices to compare, and how to represent an effective ‘world price level’, remain controversial. After the trend towards purchasing-power-parity measures in the 1970s, opinion swung back to emphasising tradables prices (Pitchford, 1993). See Reserve Bank of Australia (1998; 2008) and Ellis (2001) for more recent approaches to Australia’s trade- weighted exchange rate and real exchange rate. These have incorporated more sophisticated conceptions of international competition, involving ideas such as ‘third-country effects’ (where a country which is not a major trading partner nonetheless influences export or import prices as an alternative source – e.g., Brazil as a rival iron ore exporter). Despite the intrica- cies, the overall impact of such adjustments appears slight: the Reserve Bank of Australia (2008, p. 7) concludes that its new Augmented Trade-Weighted Index is ‘complicated and data-intensive’ but ‘is highly correlated with the [regular Trade-Weighted Index]’, so the ‘much simpler, more transparent TWI serves well as a measure of Australia’s exchange rate competitiveness’. 6. This had more to do with the rate of growth in the volume of rural output than trends in agricultural prices – wool prices declined by 25 per cent over the 1950s and 1960s (from their pre-wool-boom level), but this was compen- sated by higher meat and other prices (Foster, 1996, p. 26). 7. For surveys of the revival of the purchasing-power-parity doctrine in this period, and comparisons with its past, see Frenkel (1976, pp. 201–05) and Dornbusch (1987). 8. Hagger (1978, pp. 167–69) surveys this literature. 9. I focus here on Mundell and neglect Fleming’s (1962) similar argument. 10 . If this conclusion were to be translated into the Swan system, it effectively means a partial endogenisation of capital flows in response to domestic demand for money, if capital flows freely, and/or an effect on the propensity to import and even on exports. 11. Johnson (1972, pp. 1562, 1564) draws on both arguments in a fairly casual way. He also writes that an interest-rate differential can be incorporated provided it is ‘fixed by economic conditions’, by which he presumably means 290 Notes

based on non-monetary factors (pp. 1563–64). The system cannot deal with an endogenous interest rate; it would be underdetermined. At a global level, it is presumed determined by ‘real’ factors, leaving the world money supply and real income to determine the world price level. 12. ‘If rectification of a balance-of-payments deficit requires that the domestic marginal product of labour in terms of foreign goods falls, because the price of domestic goods relative to foreign goods must be reduced in the foreign and home markets to induce substitution between these goods favourable to the balance of payments, it requires no money illusion but only economic realism for the workers to accept this fact’ (Johnson, 1972, p. 1561). 13. Zecher (1974) develops a similar model to Porter, but allows trade as well as capital to adjust to money market disequilibrium. 14 . ‘This evidence would suggest that the growth of the merchant banks in their role as processors of foreign funds was in response to market conditions, such as the fall in Eurodollar rates and the tightness of Australian monetary conditions relative to those abroad in 1970–72’ (Porter, 1974, p. 12). In the later paper in which he investigates more seriously the possibility of param- eter changes over time, he writes: ‘What is interesting, in retrospect, is that many neutral observers have said that the period 1968–69, when the mineral boom swept Australia, led to a far higher degree of financial linkage with the rest of the world than had previously been the base. Merchant banking, for example, took off at this time. The plots of the time-dependent offset coef- ficients appear, then, to point to a definite structural change around 1968, a change which has strong implications for the conduct of monetary policy from that time onwards’ (Porter, 1977, p. 426). 15 . In contrast to many countries to which Porter applied his model, such as Germany and Canada where markets were more tightly internationally integrated. 16 . In his later refined model, Porter (1977, pp. 427–28) finds ‘quite sizeable’ negative impact from capital controls imposed between 1972 and 1974 on net inflow, although the controls had a positive offsetting effect on flows through alternative channels – undistributed income, direct investment, and so on – which may have mounted over time had the controls been maintained. 17 . The Reserve Bank’s model RBA76 was constructed so as to cope with just such disequilibrium states (Jonson et al., 1976). Laidler (1981, p. 225) describes the model as being in the forefront of inflation theory worldwide, along with the UK cousin developed by the same economists: ‘the only models of an economy that make the consequences of such a state of affairs the focal point of an analysis of the economy’s dynamics ... an important departure in macroeconomics, bringing theoretical and empirical work one step closer together’. 18 . In fact the actual revaluation was even larger than these official figures, because the authorities had previously held the dollar at the bottom of its official band and now kept it at exactly the official parity. 19. This is a subtly different objective to #1: policymakers may actually wish to ‘import’ international inflation or deflation for domestic purposes. 20. A distinction arises when a national currency is traded in transactions not involving nationals of its country – since the balance of payments is defined Notes 291

in terms of international flows and not currency exchange as such. But this complication was not of much importance in this period. 21. The June 1976 issue of the Scandinavian Journal of Economics contains the ‘proceedings of a conference on flexible exchange rates and stabilisation policy’, including classic papers by Frenkel, Mussa, Dornbusch, Kouri and Corden, which together provide a sense of the spectrum of exchange rate thinking in the mid-1970s as it converged to orthodoxy. The ‘general discussion’ (Calmfors and Wihlborg, 1976) is particularly interesting for attempts to synthesise the international monetarist and Mundell-Fleming perspectives. The textbook ‘Mundell-Fleming model’, which remains the standard textbook approach today (e.g., in Krugman and Obstfeld (2009), is a product of the second half of the 1970s. See Obstfeld’s (2001) history. 22. However, because the period of currency appreciation was also one of an extraordinary commodity price boom – of which the first oil shock was the most dramatic instance – external price pressures were still pulling upwards. 23. Brenner (2006, pp. 127–41) argues that US devaluation helped to transmit a domestic manufacturing profit squeeze internationally. 24. It is difficult to make a judgement on the extent to which the devaluations at this point and in 1976 did feed into the inflationary spiral. Hughes (1980, p. 95) has it both ways, coming to the ambiguous conclusion that ‘there was undoubtedly some reaction both times, but ... no noticeable blip in the CPI growth path in subsequent quarters. On each occasion the quarterly CPI increases retreated downwards’. The problems involve separating the effect of the devaluation from other policy and non-policy factors changing at the same time, and judging the lag with which an exchange rate movement affects prices – which Hughes (1980, p. 106) later suggests is long. 25. In fact, when the government began to waver on this front, Treasury officials allegedly went so far as to leak information and internal opinions to the press. According to Whitwell (1986, p. 230) this was a major factor behind Fraser’s decision to split the Department of Finance away from the Treasury.

6 Inflation and Macroeconomic Policy in the Long 1970s

1. Millmow (2009) has also written a fascinating companion piece about Joan Robinson’s 1975 visit to Australia, which overlapped with Friedman’s. 2. Hughes (1980, pp. 102–03) points out the irony of Cairns’ association with the stimulus, as he was apparently sceptical of macroeconomic thinking and accused Treasury of neglecting ‘allocative’ questions. 3. Treasury Secretary John Stone also claimed a win for the anti-inflation priority, arguing against the view ‘fashionable in some quarters’ that ‘put our current relatively fortunate position down to good luck and the machi- nations of the oil sheikhs ... Not only is the investment upsurge much more widely spread that that, but even in the energy or energy-related area it can also be said that those developments alone would not have been sufficient to stimulate investment if the more general climate for investment had not improved so markedly’ (quoted in Whitwell, 1986, p. 239). 4. For example, as quoted earlier, in announcing a mini-budget in 1974, new ALP Treasurer Hayden claimed, ‘We are no longer operating in that simple 292 Notes

Keynesian world in which some reduction in unemployment could, apparently, always be purchased at the cost of some more inflation’ (quoted in Hughes, 1980, p. 115). 5 . In a 1978 survey, Hagger writes: ‘On looking back at Corden’s 1968 volume [reviewing theoretical debates about Australian economic policy] one is surprised to find that there is no chapter dealing specifically with anti- inflation policy. The more one thinks about it, however, the more reasonable the omission becomes, for one of the most striking features of the Australian discussion of anti-inflation policy in the postwar period is that practically all of the really significant contributions have appeared in the last ten, perhaps in the last five, years’ (Hagger, 1978, p. 135). He argues that, besides the obvious reason of the stagflationary experience, inflation research was motivated by the development of econometric techniques and ‘the development in recent years of an unusually fertile idea – that there exists a definite relationship between the inflation rate and the unemployment rate’ (Ibid., p. 135). That this development could be called ‘recent’ in 1978 supports my argument that the Phillips curve really only began to fly in Australia at the dusk of the postwar boom, and that the Friedman-Phelps critique was partly responsible for its solidification into a supposed statistical regularity. 6 . ‘[T]he price increase which follows any given cost increase will be larger if further cost increases are expected in the near future than if costs are expected to be stable or to fall. The most natural way to formalise it, therefore, is to introduce one or more variables into [the equation] to represent the main determinants of cost expectations ... [P]ast excess demand may exert an influence through the rate of price increase of the immediate past and, in turn, through cost expectations’ (Hagger, 1965, p. 39). This model is based on Ackley (1959) and demonstrates again that inflationary expectations or momentum were not a theoretical innovation of Friedman or Phelps. 7 . In any case, Pitchford (1968, pp. 132–33) finds momentum significant in another estimation, which is ultimately dropped because it is a less tight fit overall. Extending conclusions from this into the favoured estimation, he speculates that eradicating the inflationary cycle and stabilising the price level would require raising unemployment above 2.5 per cent, ‘but too much should not be made of this as it involves using non-significant results’. 8 . This symmetry around the natural rate, with inflation falling when unemployment is above it, was generally assumed or implied in N-REAP models of the early 1970s, but became increasingly controversial. 9 . It could perhaps be argued that the arbitration system kept the NAIRU down by restraining money-wage growth below what it otherwise would have been. 10. Note, however, that average real earnings were able to grow slightly faster than productivity growth over the same period. This can be consistent with steady real unit labour costs because the real earnings figures deflate money- earnings with the consumer price index, while unit labour costs deflate it by the implicit price deflator non-farm product (Foster, 1996, p. 280). 11. He bases this argument on a divergence between unemployment and vacan- cies rates, which had previously closely tracked one another. 12 . Pagan and Gray (1983, p. 265) reach similar conclusions about the trend of the rate of return on capital, using a very different methodology. Notes 293

13. Nieuwenhuysen and Sloan (1978, pp. 95–96) emphasise that wage-wage spirals were as important to the proposals as wage-price spirals, given the ‘follow-the-leader’ manner in which wage settlements for one industry or skill category would influence others. See Hughes (1980, pp. 106–13) on the strong views of Clyde Cameron, Minister for Labour in the Whitlam Government, regarding inequality between different groups of workers, and his desire to narrow the gap between blue and white collar professions. 14. Officer (1976, pp. 58–59) explains the process, which involved a submission to the Tribunal, a three-week consideration period and then potentially a counter-recommendation, which, if refused, triggered a public inquiry. 15. Downing (1971, p. 40) also emphasises this point – that the whole fiscal system of taxes, transfers and social benefits could be used to ‘persuade people that there are other, more effective means than increases in money incomes by which to pursue their objectives of economic justice’. The idea anticipates the ‘social wage’ aspect of the Accord in the 1980s (see Chapter 8). 16. In 1976, the Coalition government also amended the Arbitration and Conciliation Act to formally require the Commission to take account of the macroeconomic impact of its decisions (Stilwell, 1986, p. 41).

7 Strengthening the Central Bank

1. Although, again, flexibility was more important to central bankers than an absolutely higher rate. According to Schedvin (1992, p. 343): ‘The Bank was only slightly less addicted to cheap money than Treasury; the chief difference between them was the degree of interest rate flexibility within the regime of cheap money’. 2. See, for example, Griliches and Wallace (1965), who suggest that econometric tests in the 1960s began to find a significant interest rate effect on investment simply because of greater interest rate variance in the (United States) data – the power was there, lying dormant, all along (p. 326). 3. Assessment of the policy stance should not, however, be confused with assessment of policy action – since the instrument of policy (in this case the SRD ratio) was not the only influence on the intermediate target (trading bank liquidity as measured by the LGS ratio), a given variation in the instrument may reflect a judgement of the strength of other influences as much as a desired movement in the intermediate target. See Davis and Lewis (1978, pp. 20–26) for a discussion of ‘the indicator problem’. 4. Guttmann’s (2005) book on ‘the rise and fall of monetary targeting in Australia – drawing on interviews with a number of policymakers, politi- cians, economists and journalists – is a superb source on the period. 5. As Friedman himself told his Australian television audience, ‘you cannot simultaneously control your money supply and have a fixed or rigid exchange rate between the Australian dollar and other currencies’ (Friedman, 1975). 6. The stability of the demand for money was not of interest to monetarists alone: Adams and Porter (1976, p. 214) point out that the neoclassical- Keynesian IS-LM framework also depends upon a money demand function, although it should be clear from previous chapters that Australian policymakers did not operate or think in IS-LM terms, that policy targeted the 294 Notes

interest rate by shifting the money supply curve to meet the money demand curve at the appropriate point. 7. Wealth and ‘permanent income’ played a small role in the Australian literature compared with their importance elsewhere: ‘There are few estimates of private wealth in Australia, and no generally accepted set of weights for calculating permanent income’ (Davis and Lewis, 1978, p. 39). 8 . Under contemporary definitions, M1 was composed of ‘cash in the hands of the public plus current deposits with the trading banks (excluding Commonwealth and State Government and interbank deposits)’; M2 added fixed deposits to M1; and M3 is M1 plus ‘non-government, non-bank fixed deposits with trading banks, certificates of deposit and all savings bank deposits’ (Campbell et al., 1981, p.54). 9 . They also argue that movements in money balances were much larger than the errors in the money demand model estimated from pre-1970s data, so that the degree of the function’s instability should not be overstated – it did not completely break down. 10 . On the moving goalposts of the monetarist debate, see Blaug (1992: 192–205). Chick (1977) provides a detailed explanation and post-Keynesian structuralist critique of the dynamics, implicit and explicit, involved in the monetarist- Keynesian controversy. 11 . Then-Deputy President of the Conciliation and Arbitration Commission Joe Isaac reported to Guttmann that Friedman’s visit ‘was a rather amusing episode because I don’t think he had any effect on our thinking at the time. I mean we’d heard about it before; it was nothing new to us. Our feeling was there he goes again with MV = PT, we’ve done the Fisher equation to death; it’s not going to help very much now. We were suspicious of his econometrics on causal grounds. Obviously these things must add up – it’s an axiom, it’s an identity – but there are no causal connections indicated there. So I don’t think Friedman’s visit made any kind of impact’ (Guttmann, 2005, p. 274, note 13). 12 . Guttmann (2005, pp. 90–94) shows that at the outset of targeting the Treasury and Reserve Bank appeared to hold inconsistent views on the processes by which a retardation of the rate of monetary growth would affect the growth of real income and prices. 13 . Compare Minsky (1986, pp. 72–77) on an earlier analogous shift in American banking strategy.

8 Conclusion

1 . For example, within the financial sector, no sooner was ‘deregulation’ complete than ‘much of the first half of the 1990s was devoted to over- hauling risk-management and supervisory processes to ensure a more stable and robust financial system’ (Gizycki and Lowe, 2000, p. 202). The late 1990s saw the creation of the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission, while the Reserve Bank continued to monitor bank risk management. Australia was part of the international wave of prudential bank regulation centred on capital requirements, under the auspices of the Basel Capital Accords. These capital requirements Notes 295

are being tightened in response to the global financial crisis of 2007–08, and bank liquidity requirements are back – though Australia has negotiated an alternative system of liquidity management since the low level of public debt means an insufficient supply of liquid assets (Gizycki and Lowe, 2000, pp. 202–05; Davis, 2011, 312–15; Debelle, 2013). 2. In the General Theory he notes the possibility of an upward tendency of the price level in ‘the very long run’, but he seems to think in terms of a peri- odic adjustment of the otherwise stable monetary standard (Keynes, 1936, p. 307). 3. Tease (1990) reviews the debate about the balance of payments in the 1980s. Belkar et al. (2007) review the spread of the ‘consenting adults’ consensus since then. Bibliography

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Accord, see Prices and Incomes Accord Australian Council of Trade Unions aggregate demand, 19, 26, 77, 86, (ACTU), 96, 155, 165, 183, 210, 89, 92, 102, 112, 129, 142–43, 261–62, 266 176, 182, 189, 205, 216, 230, 274 automatic stabilisers, 80, 82, 85, 248 aggregate private demand, 75 Auld’s multiplicand, 80 balance of payments domestic, 55 accommodating payments, 39 focus of Menzies Government, 83 autonomous payments, 39, 92 and inflation in the 1950s, 87 capital account, 39, 53, 147 and interest-rate adjustment, 20 crises, 26, 54–55, 60–61, 107, 141, and Keynesian economics, 16 143, 147, 165, 171, 199, 256, and money-wages, 14 258, 268 relationship with balance of current account, 37–40, 50, 51, 53, payments, 69 56, 65, 67, 69, 140, 142, 146, 147, relationship with trend supply, 69 149, 166, 173, 268, 271 relationship with wages, 91 induced movements, 92 role in the Swan model, 47–48, 55, long-term problem in Australia, 255–56 55, 61 significance of composition, 75 balance of payments theory, 20, target, 15 40, 55, 159–60 absorption arbitrage approach, 42, 44, 45, 61, 64, 160, development of liquidity spectrum 167 monetary approach to the in 1970s, 223 interest rate, 68 balance of payments, 27, 69, 141, trade, 161 158, 159, 160 arbitration system, 1, 26, 46, 73, 94, significance of stock equilibria in 150, 153, 188, 200, 209, 250, 1970s theory, 141, 159, 162, see 258–59, 263–65, 272–75 also Meade, James; the Swan Award wages, 57, 103–04, 153, model 191, 256 bank credit, 92 judgements, 95–96 acceleration in the early 1970s, 228 and NAIRU, 196n9 flexibility in Keynesian problem of earnings drift, 100 economics, 114 significance of employer capacity to and non-bank credit, 133–34 pay, 96–98 target of monetary policy, 119, 130 wage drift, 104, 274 turnover of trading bank credit, 117 Argy, V., 152, 153 Bank of England, 13, 33 Arndt, H. 43, 61n29, 64, 117 Banking Act 1945, 110, 119, 229 Artis, M.J. banking system and Wallace, 64, 76–85, 82n12 central role in Australian monetary Auld, D.A.L. policy, 114 multiplicand, 57n27, 80–81, and convertibility, 277 83n14, 85 effect of the Advance Policy, 118

315 316 Index banking system – continued capital controls, 34, 37, 40, 60, effect of central bank open market 75, 111, 133, 163, 164, operations, 246 effect of M3 173, 244 monetary targets, 235–36 Carmichael, J., 152–53, 193, 273 effect of reserve ratios, reserve central banking ratios, 109, 115–16, 130, 236, Advance Policy, 118, 121 245, 257 battle for the banks (bank liquidity, 10, 116, 122–23, 126, nationalisation), 120 130–31, 220, 237, 257, 260 cheap money in the 1950s, 121, and price rises, 92 124, 126, 215, 235, 243, 249, role of central banks, 14–15, 109, 116 257, 293 tendency to create purchasing LGS (liquidity and government power in line with wage trading securities) ratio/ convention, bank and savings bank division, 125–26, 130–33, 219, 226, 118, see also central banking 226n3, 236, 238, 240, 245, Berger, Pierre, 2 246, 257 Bretton Woods Agreement, 32, 56 liquidity control, 110–11 breakdown, 140, 141, 143, 149, 166 open market operations, 119, 132, British Clearing Union proposal, 158, 175, 214, 215, 217, 218, 219, 33, 37 220, 225, 239, 240, 243, 244, 246, Draft international Employment 257, 258, 260 Agreement (Australian), 35 reserve ratio controls, 26 and ‘external balance’, 38, 41 SACT (Special Accounts, Cash fixed rate dollar standard, 37 and Treasuries) ratio, and full employment, 36 121–22, 124 impact of the wool boom on Special Account powers, 110, 116, Australia, 59 119, 120, 121, 122, 124–26, Keynes’ position, 34 132, 257 and the ‘labour standard’, 254 Statutory Reserve Deposit ratio, 133, Mundell policy trilemma, 157 163, 216–17, 224, 226n3, 226–27, relationship to the gold standard, 239, 243 33–34 sterilisation of capital flows, 57, transition to flexible and floating 156, 163 exchange rates, 139 structure of interest rates, 111, 117, Bronfenbrenner, M., 87, 89, 90, 91 see also monetary policy Budget, Commonwealth, 15 centralised wage bargaining 1950/51, 58 system, see arbitration system; 1955/56, 61, 63 Commonwealth Conciliation and 1960/61, 64 Arbitration Commission 1975, 203 Chifley Government, 76, 77n7, 82, 1979, 242 85, 120 Auld’s multiplicand, 81 attempted nationalisation of trading Budget statements on money banks, 119, 257 supply, 1982/83, 84/85, 239 Chifley, Joseph ‘Ben’, Prime components of M3 money supply Minister (1945–49), see Chifley (1970s), 237, see also Horror Government Budget (1952) class conflict, 20, 57, 105, 169, building societies, 118, 215, 176, 200, 211, 252, see also 222–24, 228 distributional conflict Index 317

Coalition, Liberal and Country Party, Copeland, Morris, 14 58, 60, 73, 76, 82, 120, 154–55, cost-of-living adjustments, 48, 57, 99, 161, 163–65, 169, 179, 182, 184, 142, 207, 209 indexaction, 95, 97, 197, 208–09 see also wages, indexation Country Party, 58, 73, 76, 111, 165, credit co-operatives, 224 169, 171 credit squeeze (1960s), 64, 65, 110, Liberal Party, 119 132, 134, 136, 224, 226, 257, 258 Cockburn, M., 99, 101 Crisp, Leslie, 16–17, 34 Committee of Economic Enquiry, 1965 Report, see Vernon Report 1965 de Brunhoff, Suzanne, 12, 13, 14, 15, Commonwealth Bank, 26, 62, 75, 76, 18, 41, 72 97, 116, 120, 127 Depression, the Great, 8, 13, 15–16, Advance Policy, 118 33, 35, 65, 84, 111, 120, 127, 170, central banking powers, 110, 118n6, 184, 260 119 Commonwealth Bank Act deregulation 1945, 110 of bank interest rates, 246 compulsory clearing house, 109 exchange rate, 246 establishment as central bank, 247 financial, 28, 244, 260 establishment of, 109 labour market, 7, 196 exchange controls, 40 and the M3 target, 245 and finance companies, 128 and money market corporations, Governor HC Coombs, 58, 112 244 reserve accumulation during the myth of, 212, 214, 247 wool boom, 56 relationship with strong monetary role in pursuit of exchange rate policy in 1970s and 1980s, 243 stability, 110 removal of trading and saving Royal Commission of 1936/37, 110 bank deposit rate restrictions separation from Reserve Bank, 257 (1980s), 244 Special Accounts, 121 developmentalism, 76, 82 as a trading bank, 118, see also distributional conflict, 2, 28, 50, 57, central banking 90, 93, 105, 169, 176, 197, 204, Commonwealth Conciliation and 211, see also class conflict Arbitration Commission, 47, 64, distributional struggle, see class 95, 101 conflict; distributional conflict 1976 change to decision-making process, 209n16 economic policy, the notion of, 13, basic wage decisions, 57n27, 64, 15, 18, 41 95–97, 99–100, 201, 209 economic rationalism, 7, 9, 276 Commonwealth Court of Euromarkets Conciliation and Abitration, see complications for central bank Commonwealth Conciliation and interest rate-setting, 161 Arbitration Commission Eurodollar interest rate effects, 162 Coombs, H.C., Governor of the worldwide development, 149 Commonwealth Bank of Australia, exchange rate (1945–60), Governor of the Reserve against a trade weighted index, Bank of Australia (1960–68), 5, 166, 172, 175, 268 Australian 58, 71n1, 72–73, 86–87, 89, 94, devaluation of 1976, 171 111–19, 121–22, 124, 126, 133–35, Australian revaluation of 1972, 169, 216, 249, 254 165n18, 165 318 Index exchange rate – continued external balance, 17, 20, 23, 25, 26, capital inflow and relaxing 27, 31, 32, 38, 39, 42, 45, 46, 48, reserve constraint from 1970, 55, 64, 70, 71, 95, 102, 112, 139, 143–44, 173 142, 143, 149, 165, 168, 255, currency peg, 37, 63, 141, 165, 166, 256, 258 170, 172, 174, 175, 242, 250, 259 external viability, 17, 31, 108 devaluation, 17, 31, 58, 59, 62, 63, 108, 143, 166, 170 Fadden, Arthur: Treasurer, 1949–1958, devaluation and the adjustable 58, 60–61, 76, 83 peg (late 1970s), 170 devaluation Firth, Gerald, 74, 74n3, 75 and fiscal stimulus 1974/75, fiscal policy, 2, 16, 24, 46–47, 60, 69, 184 devaluation and the wool 73–74, 76–85, 105, 121, 157, 165, boom, 56 176, 178–79, 181–84, 186, 196, end of the fixed peg (1976), 171 205–06, 209, 230, 237, 239, 242, flexible rate, 27, 156, 254, 268 248, 265 float of the Australian dollar in foreign direct investment, 140, 1983, 139, 166, 168–69, 171–75, 143, 148 238, 246, 268 Fraser Government, 171, 180, 184, floating, 10, 139, 141, 156–57, 167, 205, 209, 234, 239, 243 174–75, 244, 248–49, 258, 268 fight inflation first, 171, 184, 211 high-dollar discipline (1973–1976), monetary targeting, 234 168–69 wages pause, 209 impact of the fixed rate, 25, 32, 37, Fraser, Malcolm, Prime Minister 39, 40–41, 46, 63, 68–70, 111, 142, (1975–83), see Fraser Government 149, 157, 159, 165, 174–75, 227, Friedman, Milton, 6, 7, 22, 28, 86, 234, 247, 251–52, 255, 268, 276 88n17, 90, 102, 166, 176, 177, impact of foreign exchange 186–88, 193, 204, 233–34, constraints under the Bretton 243, 276 Woods system, 37, 38n6, 39n7, full employment, 3, 277 54, 60, 64n31, 68, 72, 76, 83–84, 1950s Keynesian view, 28 98, 110–11 1970s ‘wages explosion’, 201 introduction of adjustable peg (late abandonment in 1970s, 183 1970s), 167 Mundell-Fleming abandonment of official policy trilemma, 68, 167n21 commitment, 9, 210, 249 post-1967 flexibility (Australia), 165 Bretton Woods negotiations, 34, 35, real (inflation-adjusted), 42, 167, 36, 38 170, 171, 269 revaluation debates, challenge to policy (1970s), 176 56, 58, 154, 155, 163, 165, 169, challenge to policy in 1950s, 65 170, 173, 195, 203, 227 challenge to policy in 1960s, 64 revaluation in the 1971 component of internal balance, 45 Smithsonian Agreement, 166 Draft International Employment simulated float, 172 Agreement (Australian Bretton stability under the sterling Woods proposal), 35 standard, 38 effect of arbitration system, 62, 94, U.K./Australian devaluation in 100, 275 1949, 56, 58 Full Employment White Paper 1945, U.K .devaluation in 1967, 38 42, 75n4, 75–76, 253 U.S. devaluation in 1971, 38 goal of incomes policy, 210 U.S. devaluation in 1972, 165 Hicks’ ‘labour standard’, 252–54 Index 319 full employment – contineud hire-purchase finance companies, 26, and inequality, 248 117, 121, 127n9, 133 inflation theory in the 1950s, 87 postwar emergence and growth, Kaleckian view, 177 126–28, 135 Keynes theory of inflation, 88, 88n16 trading bank involvement, 129, monetarist argument for see also non-bank financial abandonment, 211 institutions Phillips curve ‘trade-off’ with Holzman, F., 87, 89–91, 93 inflation, 101, 104n32, 105, Horror Budget (1952), 60, 73, 187, 188 75–76, 82 postwar commitment, 3, 140 Reserve Bank obligation, 3 import restrictions (1950s), 41, role in Auld’s multiplicand, 80, 85 50, 61n30, 61–62, 64–65, 67, role in incomes policy, 262, 266 142, 283 tension with exchange rate incomes policy, 10, 28, 206–10, 259 stability, 255 the Accord, 96 tension with external balance, 17, conservative embrace, 155 20, 23, 26, 35, 38, 45, 48, 55 Prices and Incomes Accord, 210, tension with price stability, 6, 10, 262, 264, 265, 266, 270 26, 31–32, 35, 42, 46, 63, 71, relationship with arbitration 73–74, 85–86, 101, 108, 178, 181, system, 100, 250 210, 247, 254, 256 relationship with full employment objective, 178 George, Susan, 7 Treasury scepticism, 211 Giblin, L.F., 74, 109 and wage indexation, 208 gold standard, 13, 33n1, 38, 40, inflation 46n17, 69, 165, 249, 277 chronic inflation in the 1950s, gold-exchange standard, 38 24, 91, 177, 187 Keynes’ view, 251 cost-push theory, 87, 90–93, transition to ‘managed money’, 152, 189 249, 250–52, 254 demand-pull theory, 86–87, Gorton, John, Prime Minister 90–93 (1968–71), 181 the ‘democratic dilemma’ of Gray, M., 170 counter-inflation policy, 74 Great Inflation, the, see stagflation econometric studies, 188–89 ‘imported inflation’, 141, 150, 152, Hagger, A.J., 189, 191–93 154–55, 158, 165, 169, 197, 201, Hancock, K.J., 96n26, 96, 99, 100–01, 204, 258 103–04, 190–92 inflation gap model, 26, 61, 75, Harris, C., 64 86, 189 Haupt, R., 154, 155 internal balance, 31–32, 45–46, 48, Hawke, Bob, ACTU Secretary, 183 55, 70–71 Prime Minister (1983–91), see Hawke Government Jessop, Bob, 12–13, 22–23 Hawke Government, 186, 245 Johnson, Harry G., 111–12, 150–51, Hicks, J.R., 13, 88, 252, 253, 254, 268 155, 159, 160n11, 160–62, IS-LM, 88, 90, 112–13, 157, 216, 289–90 218, 231n6 Jonson, P.D., Reserve Bank economist, the ‘labour standard’, 252–53 152–55, 163–64, 193–94, 205 320 Index

Kalecki, M. labour market, the, 2, 3, 5, 7, 41, 57, on full employment, 177 92–93, 101, 104–105, 153, 193–94, Karmel, Peter, 91, 92, 94, 96n26, 196, 206, 247, 249, 252, 260, 268 97, 101 labour movement, see trade union Keating, Paul movement Prime Minister (1991–96), 106 labour productivity Treasurer (1983–91), 139, 267, and wages, 97 271, 272 Langmore, John (Senior Advisor to Keynes, John Maynard Ralph Willis), 262 and the Bretton Woods Lynch, Phillip, Treasurer, 1975–77, 171 Agreement, 33 General Theory, 15, 16, 72, 88, 112, Machlup, Fritz, 69, 92, 93n21, 168 113, 114, 117, 256 program balance, 40, 41, 69 Treatise on Money, 251, 251n2 McKinnon, Ronald, 37, 68–70 Keynesian economics, 7, 24, 35, 72, McMahon Government, 181 74, 197, 247, 254 McMahon, William, Prime Minister Auld’s multiplicand, 80 (1971–72), see McMahon balance of payments theory, Government 39, 42, 167 manufacturing and Commonwealth Bank growth in 1950s, 50 monetary policy, 112 growth in 1960s, 141 demand management, 186 Meade, James, 31, 32, 39, 40, 42, 43, and demand-pull inflation 61, 62, 63, 70, 99 theory, 90 Menzies Government, 17, 58, 63, 83, and the Depression, 15 106, 120 full employment, 17, 28 Menzies, Robert, Prime Minister income-expenditure flows, 70 (1949–66), see Menzies income-specie-flow mechanism, 158 Government and inflation in the 1970s, 152–53 merchant banks, 162n14, 223–24 Keynesianism of restraint, 60, 76, mining boom 165, 256 1960s, 141 liquidity preference theory, 88, 113, 1968–1972, 221 117, 130, 131, 234, 246 early 1980s, 221 loanable-funds debate, 113 speculation, 141 neoclassical synthesis, 5, 20, 88, mobile portfolio investment capital 216, 232, 242, 255 New Deal, 13 growth in 1970s, 33, 140, 149, the Phillips curve, 73, 86, 90 174, 265 postwar ascendancy, 7, 75 monetarism, 5, 22, 28, 153, 155, and the Swan framework, 140 176, 191, 194–95, 203, 205, 208, the Swan model, 46 210–11, 213–14, 218, 230–34, Korean War 236–37, 241–43, 259–60 effect of inflation on Australia, 59 and incomes policy, 206 wool boom, 56, 255 international monetarism, 150, 155, 158–59, 161, 163–64, 167, 204 Labor Party, Australian, 33, 63, 74, and M3 money aggregate targets, 241 76, 82, 110, 154–55, 163–65, monetary targeting, 28, 173, 169, 173, 182–84, 186, 197, 201, 205–06, 214, 231, 234–35, 237, 209–10, 227, 245, 249, 261–62, 239, 241–44, 260, 263, 293 266–67, 271–72, 275 quantity theory of money, 159 Index 321 monetary policy tightening in the early 1950s, 64 1945 central banking powers, 120 money market corporations, 215, 222, 1960s ‘credit squeeze’, 258 224, 226, 244, 257, 260 1971 stimulus, 182 capital gearing ratio, 225 1973 tightening, 183 effect on liquidity, 219 Australian push for expansionary emergence and growth, 131–32, 223 policy across the sterling area lender-of-last-resort protection, during the Depression, 35 132–33, 258 automobile sales tax (as monetary off-exchange market in Treasury policy), 84 notes, 220 banking system focus in the share of total non-bank assets, 222 1950s, 110, 113–14 Campbell money market dealers, see money Committee of Inquiry into the market corporations Australian Financial System money supply, A.W. Phillips’ 1979–80, 235 definition, 219 the credit squeeze (1960s), 64, 84 effect of non-bank finance crisis of 1974, 228, 229 companies, 131 development as counter- exogenous in Keynesian inflationary tool, 25 economics, 114 effects of capital flows in the early monetarism, 22 1970s, 161, 162, 163, 164, 165 and nominal income growth in effects of exchange rates on policy monetarist theory, 260 autonomy, 156, 157, 160, 163–64, replaced by interest rate as 175, 238 instrument of monetary effects of finance companies, policy, 23 129–30, 258 role in Mundell’s policy effects of the float, 139 trilemma, 157 effects of the wool boom, 121–22 sterilisation through Statutory emergence of the 1990s inflation- Reserve Deposit ratio, 163 targeting regime, 246, 249 moneydemand function, 159, 160, gradual shift of focus to money 217, 231, 232, 233, 255, 271 markets, 212 interaction with multiplier fiscal policy (deficit financing), 77 Auld’s multiplicand, 80 liquidity traps, 20 balanced budget multiplier, monetarist challenge to ‘discretionary’ 77n8, 77 policy, 231 monetary targets, 211, bank multiplier, 114 230, 239, 242 effect on domestic aggregate postwar embrace of Keynesianism demand, 57 in Australia, 13n8, 75, 112 fiscal policy multiplier, 178 resistance of private banks to central inflation multiplier, 89 banking, 26 money multiplier, 236–38 role in the Mundell-Fleming policy reserve multiplier, 115 trilemma, 68 role in Keynesian economics, 80 role of open market operations, Mundell, Robert, 27, 34, 68, 70, 142, 225, 260 strengthening role of 155, 156, 157, 158, 159, 160, 162 deregulation, 28, 213–14, 243, Mundell-Fleming framework 246, 248n1, 260, 276 balance of payments model, 142 tension with the ‘cheap money’ policy trilemma, 68 commitment, 124 and the Swan system, 155 322 Index

NAIRU (non-accelerating inflation Phillips, A.W., see Phillips curve rate of unemployment), 4, 6, 7, Phillips curve, 87, 104, 186, 189, 256 28, 196, 196n9, 275 A.W. Phillips visit to Australia, 73 neoliberalism, 8–10 and the arbitration system, 105 Nevile, J.W., 77, 78n9, 153–54, Australian data, 102 178–82, 184–85, 193–95, 233 Australian scepticism, 26, 28, 188 new macroeconomic consensus, myth expectations-augmented, 6, 28, of the, 3–4, 4n4, 6, 8, 23, 176 190, 204 non-bank financial institutions ‘Keynesian’ theory, 73, 86 Australian Savings Bonds, 240 Lipsey’s assessment, 104 and the 1960/61 credit squeeze, 258 myth, 6, 101, 102 and the end of Statutory Reserve natural-rate, expectations- Deposit ratio for trading banks, 245 augmented, 191 effect of 1960 automobile sales natural-rate, expectations- tax, 84 augmented (N-REAP), 176, 187, effect of public’s liquidity 192–96, 210, 259 preference, 117 Phelps-Friedman critique, 90, 188 effect on deposits and central bank Samuelson and Solow’s assessment, reserves, 116 104, 104n32, 287 effect on money supply, 130–31, 133 Phillips, J.G., Deputy Governor, emergence and growth in the 1950s, Reserve Bank of Australia, 110 110, 214 political business cycle (1950s), 85 Financial Corporations Act 1974, 229 Porter, M., 158, 161–63, 164n17, financial crisis of 1974, 229 232–33, 290, 293 hire-purchase finance companies, Poulantzas, Nicos, 12–14, 17, 22 26, 117, 121, 126 price stability money market corporations’ capital after the 1960/1 credit gearing ratio, 225 squeeze, 257 regulation, 244 as a balance between labour regulators’ limited power over, 213 productivity and wages, 96 removal of restrictions on bank and the balance of payments in deposit rates, 246 early 1960s, 258 retreat in the 1960s, 214 central bank inflation targets, 1 role in tiered system of liquidity, 218 contradiction with full share of assets, 215 employment, 26 share of loans to private sector, 128 and economic rationalism, 276 type of institutions and assets and a fixed exchange rate, 255 share, 222 in a system of ‘managed Whitlam Government’s attempt money’, 250 to institute balance sheet incomes policy goal, 210 controls, 264 internal, 45, 46 Nurkse, Ragnar, 35 internal balance with full employment, 71 output gap, 4 and the Prices and Incomes Accord, 262 Pagan, A., 170, 203n12 priority after the wool boom, 73 pastoral finance companies, priority in 1957 budget, 84 118, 215, 224 relationship with aggregate Phelps, Edmund, 28, 86, 90, 187, 188 demand, 89, 230 Index 323 price stability – continued Samuelson, P., 77n8, 104 relationship with full employment, savings banks 6, 31–32, 35, 42, 63, 73, 85–86, 1980s deregulation of deposit rates, 178, 181, 254, 256 240, 244–45 relationship with internal and competition from building societies external balance, 46 in 1970s, 223 relationship with unemployment, 107 expansion in 1960s, 214 tension with other macroeconomic involvement in Australian sovereign goals, 17, 23 bond market, 119 Prices and Incomes Accord, 96, 186, involvement in housing finance, 118 210, 249, 260–75 liquidity, 123 social wage, 208n15, 264 ownership, structure and products, Prices Justification Tribunal, 206, 208, 118 264, 266, 267 Smithsonian Agreement 1971, 166 profit squeeze, 1, 170, 177, 202, 259 Solow, R., 104 Special Drawing Rights, IMF, 149 Radcliffe Committee (UK), 111, 135, speculation, 37, 69, 141, 149, 162–63, 216, 218, 225, 240 166, 172 Randall, Sir Richard (Deputy Secretary, effect on macroeconomic planning, Australian Treasury), 15 63, 149, 172–73, 175 recession speculative flows, 34, 40, 56, 1952/53, 60 80, 134, 162–63, 165, 167, 1971, 227 170–71, 178 1974, 170, 196, 203 stagflation, 1, 5, 6, 28, 170, 180, 182, and the 1975 Dismissal, 184 187, 195, 203, 206, 260, 261 and cost-push inflation theory, 91 the monetary policy neglect early 1960s, 17, 26, 64, 85, 106, 110, hypothesis, 4 143, 181, 185, 188 state, the early 1980s, 3, 185, 196, 209, 210, Jessop-Poulantzas theory of strategic 260–61, 263 selectivity, 11–12, 12n8, 12–13, early 1990s, 106, 260, 271, 272 21, 22 and the ‘labour standard’, 252 strategy of the capitalist state, 2, 277 Reserve Bank of Australia (RBA), Swan model, the, 20n11, 55n26, 66, 3, 110, 133, 134, 143–44, 149, 70, 142, 148, 155–56, 160, 165, 152–55, 163, 165, 169, 170–72, 255, 289 174, 185–86, 194, 196, 205, 211, cost ratio, 25–26, 46, 55–56, 59–67, 216–17, 219, 225–26, 230–31, 142–43, 145, 148, 157, 160–61, 234–38, 245, 248, 272, 276 165, 255–57 competitiveness index, 59 non-tradables, 59, 66 establishment in 1959, 26, 118n6 the Swan diagram, 46n18, 47 Rio Tinto tradables/non-tradables, 44, 59, 69, establishment of, 67 145, 151, 225, 256 Rudd, Kevin, Prime Minister zones of economic unhappiness, (2007–10, 2013), 7, 8 55, 70 Russell, Eric, 61, 63, 94, 96–97, 99n27, Swan, Trevor, 32, 42, 58, 255 100–03, 189–90, 207, 271, 272 tariffs Salter, W., 20n11, 47, 96–97, 100–01, across-the-board reduction 207, 272 (Whitlam Government), 169 324 Index tariffs – continued opposition to devaluation, 170–71, the ‘employment approach’, 185 35, 35n2 postwar preference for low interest the end of import controls, 65 rates, 111 relationship between cuts and profit squeeze hypothesis, 259 labour turnover, 195 role of cuts reaction to the Vernon Report, 144 in higher unemployment from rejection of ‘imported inflation’ 1973/74, 184 hypothesis, 154, 197 Tariff Board, 169 revaluation debate in the 1950s, 56, trade union opposition to cuts, 169 58, 61 Taylor rule, 4, 5, 5n5 scepticism of incomes policy, 211 terms of trade, 33, 43, 57, 97, 98, 200, scepticism of monetarism, 204–05 268, 281 the ‘Treasury line’ in the 1970s, Tinbergen, Jan, 17–18, 19n10, 19–21, 15, 28 41, 43, 71, 73, 102, 105, 176, 181, 237, 250, 273 unemployment: ‘natural rate’, 4, 6, boundary conditions, 20, 21, 47, 71, 176, 193, 194–97, 203, 263, see 102, 105, 106, 111, 115, 257, 273, also NAIRU 274, 275 defence lines, 20, 21 Vernon Report 1965, 17, 31, 39–40, exogenous data, 19 48, 56, 60, 64–67, 78n9, 94–95, instrument variables, 19 96n26, 97–98, 107–08, 118–19, qualitative policy, 21, 42, 73, 237, 123, 127–28, 143–44, 149 250, 273–74 Vietnam War quantitative policy, 19, 42, 71, 102, U.S. current account deterioration, 181, 237, 273 target variable, 19 149 trade union movement, 33, 38, 76, Volcker shock, 173, 243 94, 96, 100, 105, 111, 120, 154, von Hayek, Friedrich, 7, 10, 276 155, 165, 169, 183, 197, 199–204, 207–11, 252–54, 256, 261–64, wages 266, 269, 271, 273–75 confidence, bargaining, 1, 2, 7, 73, 267 128, 201, 259 earnings drift, 101, 105, 202, 256 Treasury, Commonwealth indexation, 28, 105, 191, 204–05, 1961 survey, 64, 85 207–10, 256, 262, 266–69, 274 1964 survey, 106–07 labour share of aggregate income, 1971 survey, 141, 150 97, 99, 259 balance-of-payments concerns, money-wage variable, 14, 26, 150, 152 44–48, 57, 63, 73, 87, 88, 94, 100, call for 1985 ‘Tax Summit’ 267 103–04, 143, 178, 188, 192–94, call for tighter monetary policy, 197, 199, 202, 204, 207–08, 181–83, 257, 259 252–53, 256, 258–59, 267, 274 cautious embrace of monetary policy, 63, 73, 262, 267, 274 targets, 230, 234, 241, 260 role in cost-push inflation, 90 criticism of trade unions, 199–200, wage bargaining, 1, 7 203–04 wage-setting, 47, 57, 89, 93, 103, hostility to the float, 169 105, 262, 265, 272, in the Swan model, 47 see also arbitration system; Prices official commitment to the and Incomes Accord ‘Keynesianism of restraint’, 75–77 wages explosion (1974), 170, 200 Index 325

Wallace, R.H., 64, 76–85, 118–19, Whitlam Government, 165–66, 169, 132–33, 155 179, 182–84, 206, 249, 261, 264 White, Harry Dexter, 36, 36n4 Willis, Ralph, Shadow Treasurer Whitehead, Donald, 94, 99, 100, 101, 1976–83, 261–62 208, 286 wool boom (1950/51), 26, 42, 50, Whitlam, Edward Gough, Prime 56–62, 65–67, 73, 82–83, 97–98, Minister (1972–75), see Whitlam 105, 121–25, 140, 149, 152, 182, Government 190, 200, 255–56