I poked around a little, finding enough that I wanted to come back for a more thorough look.
I found something on Robert J. Gordon and his "triangle model" of inflation. I heard of that 20 years ago or more, and had in the back of my mind ever since. Never went looking for it, but now here it was, quite by accident. So I made a note and kept the link to the M.A. FINAL ECONOMICS page handy, planning to get to it -- some time in the next 20 years maybe.
Then I came across the names Samuelson and Solow, together like that: a reference to their 1960 article that I've been on about lately. So I added to my note:
I DON'T KNOW WHAT THIS [PAGE] IS BUT IT MIGHT BE INTERESTINGWhile I was there I read the first sentence of the S&S part:
2.7 SAMUELSON AND SOLOW’S APPROACHAh, the good stuff. It struck me as a paraphrase, at first. But I remembered the words "a priori reasoning" and I remember S&S not rejecting "either the demand-pull or cost-push hypothesis, or the variants". Seemed like a lot of identical words, for one sentence. Sort of a relaxed paraphrase, or maybe a plagiaphrase. Couldn't say for sure, but I had to go back to my "I don't know what this is" note and double-underline it.
As this model says, it is not possible on the basis of a priori reasoning to reject either the demand-pull or cost-push hypothesis, or the variants of the latter such as demand-shift...
That was two or three days ago. I'm back to it now to see what I saw. I compared the M.A. FINAL ECON article to the Samuelson and Solow article that I recently extracted from the Joint Economic Committee report and put on the blog. The two are not identical after all. I've taken a few paragraphs of each, and highlighted the differences; I made the paragraph breaks the same for both, to make reading and comparison easier. The original paper from 1960 on the left; the M.A. FINAL ECON paper on the right:
| IV | 2.7 SAMUELSON AND SOLOW’S APPROACH |
| We have concluded that it is not possible on the basis of a priori reasoning to reject either the demand-pull or cost-push hypothesis, or the variants of the latter such as demand-shift. We have also argued that the empirical identifications needed to distinguish between these hypotheses may be quite impossible from the experience of macrodata that is available to us; and that, while use of microdata might throw additional light on the problem, even here identification is fraught with difficulties and ambiguities. Nevertheless, there is one area where policy interest and the desire for scientific understanding for its own sake come together. If by deliberate policy one engineered a sizable reduction of demand or refused to permit the increase in demand that would be needed to preserve high employment, one would have an experiment that could hope to distinguish between the validity of the demand-pull and the cost-push theory as we would operationally reformulate those theories. If a small relaxation of demand were followed by great moderations in the march of wages and other costs so that the social cost of a stable price index turned out to be very small in terms of sacrificed high-level employment and output, then the demand-pull hypothesis would have received its most important confirmation. On the other hand, if mild demand repression checked cost and price increases not at all or only mildly, so that considerable unemployment would have to be engineered before the price-level updrift could be prevented, then the cost-push hypothesis would have received its most important confirmation. If the outcome of this experience turned out to be in between these extreme cases-as we ourselves would rather expect-then an element of validity would have to be conceded to both views; and dull as it is to have to embrace eclectic theories, scholars who wished to be realistic would have to steel themselves to doing so. Of course, we have been talking glibly of a vast experiment. Actually such an operation would be fraught with implications for social welfare. Naturally, since they are confident that it would be a success,the believers in demand-pull ought to welcome such an experiment. But, equally naturally, the believers in cost-push would be dead set against such an engineered low-pressure economy, since they are equally convinced that it will be a dismal failure involving much needless social pain... | As this model says, it is not possible on the basis of a priori reasoning to reject either the demand-pull or cost-push hypothesis, or the variants of the latter such as demand-shift. UTe have also argued that the empirical identifications needed to distinguish between these hypotheses may be quite impossible from the experience of macro data that is available to us; and that, while use of microdot might throw additional light on the problem; even here identification is fraught with difficulties and ambiguities. Nevertheless, there is one area where policy interest and the desire for scientific understanding for its own sake come together. If by deliberate policy one engineered a sizable reduction of demand or refused to permit the increase in demand that would be needed to preserve high employment, one would have an experiment that could hope to distinguish between the validity of the demand-pull and the cost-push theory as we would operationally reformulate those theories. If a small relaxation of demand were followed by great moderations in the march of wages and other costs so that the social cost of a stable price index turned out to be very small in terms of sacrificed high-level employment and output, then the demand-pull hypothesis would have received its most important confirmation. On the other hand, if mild demand repression checked cost and price increases not at all or only mildly, so that considerable unemployment would have to be engineered before the price level up drift could be prevented, then the cost-push hypothesis would have received its most important confirmation. If the outcome of this experience turned out to be in between these extreme cases-as we ourselves would rather expect-then an element of validity would have to be conceded to both views; and dull as it is to have to embrace eclectic theories, scholars who wished to be realistic would have to steel themselves to doing so. Of course, we have been talking glibly of a vast experiment. Actually such an operation would be fraught with implications for in demand-pull ought to welcome such an experiment. But, equally naturally, the believers in cost-push would be dead set against such an engineered low-pressure economy, since they are equally convinced that it will be a dismal failure involving much needless social pain... |
Okay. To tie this all together I want to point out that Samuelson and Solow said "it is not possible on the basis of a priori reasoning to reject either the demand-pull or cost-push hypothesis". And the M.A. FINAL ECON paper says it. And I say it, and maybe you also, I dunno. But Paul Volcker most definitely did not say it.
Gone was the notion of cost-push versus demand-pull. Volcker implicitly accepted that rising inflation was caused by “demand-pull”.
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