Terms of the Times (3a): Before the Great Inflation

 

The Great Inflation from 1965 to 1984 is the climactic monetary event of the last part of the 20th century. 

- Allan H.  Meltzer

 

 

Truman

1952 steel strike:

The 1952 steel strike was a strike by the United Steelworkers of America (USWA) against U.S. Steel (USS) and nine other steelmakers. The strike was scheduled to begin on April 9, 1952, but US President Harry Truman nationalized the American steel industry hours before the workers walked out. The steel companies sued to regain control of their facilities. On June 2, 1952, in a landmark decision, the US Supreme Court ruled in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), that the President lacked the authority to seize the steel mills.

The Steelworkers struck to win a wage increase. The strike lasted 53 days and ended on July 24, 1952 on essentially the same terms that the union had proposed four months earlier.

Eisenhower

Wikipedia:

The presidency of Dwight D. Eisenhower began at noon EST on January 20, 1953, with his inauguration as the 34th president of the United States, and ended on January 20, 1961...

There were three recessions during Eisenhower's administration—July 1953 through May 1954, August 1957 through April 1958, and April 1960 through February 1961, caused by the Federal Reserve clamping down too tight on the money supply in an effort to wring out lingering wartime inflation.

 

Three brief notes on inflation, from The Eisenhower Encyclopedia,

Ike saw Senator Taft give a speech in the late 1940s asking Americans to eat less to lower food prices.  Liberals criticized the speech, but Ike agreed with Taft “one-hundred percent.”

Ike sawed off pieces of wood at rallies during the 1952 election to show the effect inflation had on money.  (Baier, Three Days in January)

Ike ended the Korean War in July 1953.  The war’s end caused the government to decrease its armament purchases.  Unemployment rose from 2.6% to 6.1% by September 1954.  Arthur Burns, an economic advisor, said Ike should cut taxes and expand public works programs to reverse the economic downturn.  Secretary Humphrey objected.  Ike sided with Burns and pushed for a $7 billion tax cut.  He also signed legislation extending unemployment benefits for four million workers.  This deficit spending ended the small recession in less than a year.  (Gellman, The President and the Apprentice)

and two on steel:

Ike criticized Truman’s seizure of the steel mills during the 1952 Steel strike. (Ambrose, Eisenhower: Soldier and President)

Ike initially wanted to stay out of the 1959 Steel Strike, saying, “These people must solve their own problems.”  He finally evoked the Taft-Hartley Act to force the workers to return to their jobs.  (Gellman, The President and the Apprentice)

Steel strike of 1959:

The steel strike of 1959 was a 116-day labor union strike (July 15 – November 7, 1959) by members of the United Steelworkers of America (USWA) that idled the steel industry throughout the United States. The strike occurred over management's demand that the union give up a contract clause which limited management's ability to change the number of workers assigned to a task or to introduce new work rules or machinery which would result in reduced hours or numbers of employees. The strike's effects persuaded President Dwight D. Eisenhower to invoke the back-to-work provisions of the Taft-Hartley Act. The union sued to have the Act declared unconstitutional, but the Supreme Court upheld the law.

The union eventually retained the contract clause and won minimal wage increases.

Kennedy

Background from The Los Angeles Times:

Kennedy used a tactic his economic advisor, Walter W. Heller, called “jawboning” to urge business and labor to behave responsibly. In Kennedy’s time, that meant pay increases shouldn’t exceed productivity gains--and price hikes shouldn’t exceed increases in wages.

As Heller explained, “jawboning” used “the power of public opinion and presidential persuasion"--the bully pulpit--and Kennedy did it with words and deeds.

In his [January 11] 1962 State of the Union, Kennedy declared, “Our first line of defense against inflation is the good sense and public spirit of business and labor--keeping their total increase in wages and profits in line with productivity. There is no statistical test to guide each company and each union. But I strongly urge them--for their country’s interest and their own--to apply the test of the public interest to these transactions.”

Soon, Kennedy’s call was questioned. U.S. Steel Corp. substantially increased its prices ...

Introduction :

Kennedy, since the Inaugural Address and beyond, had been asking Americans and American business to exercise restraint to enable the United States to meet it's obligations and strengthen it's economy. The Steel Workers of America agreed to hold off their demands for higher wages if the Steel Companies, on their part, would not raise the price of steel. The workers kept their end of the bargain, the companies did not, ordering a price increase after a strike was averted. This dishonest and irresponsible act angered Kennedy, as is made clear in the [ April 11 ] speech.

Background from People's World:

The Democrat, after just a year in office, was concerned about potentially rising inflation.  His administration set an informal but well-publicized target of having wage increases and price hikes match productivity increases.  Meanwhile, Steelworkers’ bargaining over a contract with the nation’s steel companies was getting nowhere.

The administration intervened.  It didn’t want a rerun of the 4-month steel strike of 1959 under GOP President Eisenhower.  Labor Secretary Arthur Goldberg, a longtime union counsel, mediated the talks.  The two sides reached agreement on March 31.

The pact, with ten of the nation’s 11 steel companies, called for an increase in fringe benefits worth 10 cents an hour in 1962, but no wage hikes that year.  Then-AFL-CIO President George Meany said that in the pact, the union “settled on a wage increase figure somewhat less than the Steelworkers thought they would get.” 

Kennedy praised the contract as “obviously non-inflationary” and said both the USW and the steel firms showed “industrial statesmanship of the highest order.”  The agreement also implicitly said the companies would not raise prices, as that would be inflationary.

But on April 10, Roger Blough, CEO of U.S. Steel, the largest of the firms, with 25% of the market, met Kennedy in the Oval Office and told him the company was immediately raising prices by $6 a ton – and that other steel companies would follow.  Six did.  The 3.5% hike enraged the president.   What he said in public was biting – but he was even more caustic in private.

In an April 11, 1962 press conference, Kennedy called the price hikes “a wholly unjustifiable and irresponsible defiance of the public interest.”  He criticized “a tiny handful of steel executives whose pursuit of power and profit exceeds their sense of public responsibility.”  The execs had “utter contempt” for the U.S., Kennedy said. ...

News Conference 30, April 11, 1962:

THE PRESIDENT: Good afternoon. I have several announcements to make.

Simultaneous and identical actions of United States Steel and other leading steel corporations, increasing steel prices by some 6 dollars a ton, constitute a wholly unjustifiable and irresponsible defiance of the public interest...

The facts of the matter are that there is no justification for an increase in the steel prices. The recent settlement between the industry and the union, which does not even take place until July 1st, was widely acknowledged to be non-inflationary, and the whole purpose and effect of this Administration's role, which both parties understood, was to achieve an agreement which would make unnecessary any increase in prices.

Steel output per man is rising so fast that labor costs per ton of steel can actually be expected to decline in the next twelve months. And in fact, the Acting Commissioner of the Bureau of Labor Statistics informed me this morning that, and I quote: "Employment costs per unit of steel output in 1961 were essentially the same as they were in 1958. " ...

Some time ago I asked each American to consider what he would do for his country and I asked the steel companies. In the last 24 hours we had their answer.

//

Seems to me there was a lot of concern about inflation in those early years, before the period called "the Great Inflation." Much of that concern was focused on cost-push. In Part 1 of this series we saw the great focus on "cost-push" between the early 1950s and the early 1970s, and since the early 1970s its decline, with the rise of focus on "supply shocks". In Part 2 we observed the evolution of terminology, in new concepts and changing definitions arising with this change in focus.

In Part 3 we have already looked at the situation before the persistent and repeated rise of inflation that began in the mid-1960s. My further plan is to look into the differences between cost-push and demand-pull inflation, and the changes in economic thought on the subject -- in particular, the focus of economic thought on "temporary" versus "sustained" cost-push.

And I want to explore the once and future concept of sustained cost-push inflation.

Terms of the Times (2c): Long-term economic decline

The whole long-term problem of declining economic growth could be due to cost pressure that we overlook because we took the "cost-push" concept and flushed it down the toilet.

 - Arthurian

US Real GDP Growth Rate:

Source: Peterson Foundation

 

US  Real GDP per Capita:

Source: Gallup

 

US Real GDP Growth Rate (outside of recessions)

Source: Forbes (Raul Elizalde)

US Real GDP Growth Rate:

Source: My graph. Elizalde's Method

 

US Potential GDP Growth Rate:

Source: FRED data, Excel Graph & Trend

 

US Real GDP relative to Potential:

Source: FRED with Excel overlay in red

 

Fewer New Businesses:

Source: FiveThirtyEight

 

Less Expansion of New Businesses:

Source: FiveThirtyEight

 

 Total Factor Productivity:

Source: Robert Gordon

 

Gross Fixed Investment:

Source: Minneapolis Fed

 

 World and OECD Real GDP Growth Rates:

Source: Lumen Learning

 

G7 Real GDP Growth Rate:

Source: Gavyn Davies blog at FT

 

Eurozone Growth:

Source: Economics Help

 

Terms of the Times (2b): A self-inflicted blindness

They assert without evidence that continuing cost pressure cannot exist; they beckon the decline of prosperity.

 - Arthurian

Before the Volcker Fed, economists searched for the cost that was the source of cost-push inflation. That search was abandoned, unresolved, when Paul Volcker worked his magic. Marcus Nunes gives away the magician's secret:

On becoming chairman of the Fed, Volker challenged the Keynesian orthodoxy which held that the high unemployment high inflation combination of the 1970´s demonstrated that inflation arose from cost-push and supply shocks ...

To Volker, the policy adopted by the FOMC “rests on a simple premise, documented by centuries of experience, that the inflation process is ultimately related to excessive growth in money and credit”.

This view, an overhaul of Fed doctrine, implicitly accepts that rising inflation is caused by “demand-pull” or excess aggregate demand or nominal spending.

Or, as Robert Hetzel said,

The central bank is the cause of inflation. 

Or, as Mike Shedlock said, quoting a friend:

There actually is no such thing as 'cost push inflation'. Think about it - if the money supply were to remain stable (which isn't the case, but hypothetically), then a rise in price of some goods automatically would lead to a fall in prices of some other goods...

Economy-wide, a rise in general prices is only possible if the money supply increases.

Or, as Caroline Baum said:

This is one of those myths that never dies: cost-push inflation. Milton Friedman was adamant that both prices and costs rise in response to an increase in aggregate demand, which is a function of the Fed’s money creation.

Or, as Dallas S. Batten wrote in 1981, while Volcker was performing his magic:

The ultimate source of inflation is persistent excessive growth in aggregate demand resulting from persistent excessive growth in the supply of money.

Since Volcker's time, the search for underlying cost pressure has been cast aside, forgotten. Why bother to look for cost pressure? If the Fed can control inflation by controlling the money, who cares about underlying cost pressure? Who even cares?

 

I care, because cost pressure slows the economy.

Of course the monetary restriction we use to fight inflation slows the economy. This is Basil Fawlty's "bleeding obvious." But whether or not "the Fed can control inflation by controlling the money," it remains true that cost pressure not relieved by inflation finds relief by slowing the economy. It is obvious to me that if an increase in cost drives my profits down (and if profits were running low anyway because times are tough) then I'm going to have to raise my prices. The cost pressure forces my hand. 

And if policy prevents the increase in my prices, then maybe my business fails: The economy gets a little slower, because of cost not relieved by inflation. 

Note that "wage and price controls" could have the same effect as "tight money" in this regard, driving business out of business and slowing the economy.

Note also that if profits have been running low because times are tough, then cost pressure was probably reducing profits and slowing the economy already for some years before rising cost forced the closure of my (hypothetical) business.

Monetary restriction slows the economy. So does cost pressure that is not relieved by inflation. But here is something else, something I have trouble understanding: Cost pressure slows the economy even if inflation fully relieves the pressure. I can't make sense of it. But here it is, in the inflation diagrams:

This is a screen capture of slide 36 from a SlideShare presentation by videoaakash15.
You can click the image to visit the presentation.

Note the direction of the arrows below the horizontal axis. As the diagrams show,

Under demand-pull inflation, output and income tend to grow faster. Under cost-push inflation, they tend to grow slower.

The cost-push diagram does not show Aggregate Supply shifting to the left as an alternative to a price increase. It shows prices rising and Aggregate Supply shifting left. The diagram indicates that both of these changes happen.

Like me, not everyone gets this. But I am starting to find people who do.

Frederic S. Mishkin, in The Causes of Inflation:

... demand-pull inflation will be associated with periods when output is above the natural rate level, while cost-push inflation is associated with periods when output is below the natural rate level.

Demand-pull goes with rapid growth, Mishkin says, and cost-push goes with slow growth.

Siddha Raj Bhatta, the Deputy Director at the Central Bank of Nepal:

In a less than fully employed economy, demand side inflation raises price level but at the same time output as well as employment level also rises. On the other hand, in supply side inflation, price level rises but employment and output falls due to decrease in supply. Thus, supply side inflation has two costs: fall in purchasing power and rise in unemployment.

The Deputy Director says demand-side inflation helps grow jobs and the economy, while supply-side inflation is harmful to growth and employment.

According to Tejvan Pettinger at Economics Help, cost-push inflation causes

• "a shift to the left of short run aggregate supply."
• "rising prices and falling real GDP."
• "a fall in living standards."
• "a fall in real wages."

If I was the cleaner for the ECB, Pettinger says, I’d be tempted to barge into a meeting and say 

“It’s not the inflation you need to sort out, its the falling GDP!”

Taken out of context, of course, that last part. 

 

What happens if cost pressure is not relieved?

Let me say again that I do not understand how cost-push slows the economy if the cost pressure is fully relieved by inflation. On the other hand, it is easy to see that a policy of restraining inflation will leave the cost pressure less than fully relieved, and will result in some slowing of economic growth.

Restraint of inflation is standard practice, so my assumption is that cost pressure is always less than fully relieved, and therefore that cost-push inflation does always cause economic growth to slow.

Unfortunately, inflation is the lesser problem. Cost pressure is the greater problem.

It seems that no one who makes the "accommodation" argument -- no one who agrees with Hetzel, Shedlock, Baum, Batten, and Volcker, for example -- stops to wonder what happens when cost pressure is not relieved by inflation. By failing to accommodate the cost pressure, the monetary authority prevents inflation, and that's as far as the thinking goes. But this policy encourages the slowing of economic growth.

Imagine a case where mild, long-term cost pressure exists. It is mild, so neither the inflation nor the slowing of growth is troubling. But the Consumer Price Index rises from 102.1 in January 1984 to 262.231 after 37 years. Is that mild inflation, or are we just accustomed to it?

If any of that inflation was cost-push inflation, then economic growth was slowed by the cost pressure. If it continues for 37 years, the cumulative impact on growth must surely be troubling.

People say cost-push inflation is rare. That's wishful thinking.

People have many explanations for the slowing of economic growth. All of these probably have some merit. But no one seems to consider that a mild, long-term cost pressure could be the driving force behind the gradual, long-term decline of economic growth. It just doesn't fit with evolved thought.

The proper solution to cost-push inflation

The proper solution to cost-push inflation is not to raise interest rates and slow the economy further. The proper solution is to discover and eliminate the source of the cost pressure. 

According to fully-evolved inflation theory, there's no such thing as cost-push. There is demand-pull demand side inflation, and there are "supply shocks". According to this theory, no solution is required because there cannot be a cost-push problem. That's like saying There is no God. 

We cannot know. We can only assume. That's okay for religion, but not for economics.

My idea of the proper solution to cost-push inflation is, first, to admit that it might exist.

Keep your "simple premise, documented by centuries of experience, that the inflation process is ultimately related to excessive growth in money and credit". And keep the view that without monetary accommodation, there can be no inflation. I do. I maintain that view.

But consider the possibility that, should cost pressure arise, it would slow economic growth. As the inflation diagram shows, it might slow economic growth even if the Fed creates enough inflation to fully accommodate the cost pressure. It would certainly slow economic growth in any other case.

What is the proper solution to cost pressure and cost-push inflation? The proper solution is to discover and eliminate the source of cost pressure.

 

The Temporary Nature of Supply Shocks

Peter Cooper lays this out in a recent post at heteconomist:

A supply shock can cause one-off price hikes, independently of demand conditions, but for the one-off effect to act as a catalyst for cost-push inflation there needs to be a socioeconomic process capable of reinforcing the initial effect ...

Inflation is defined as a sustained increase in the level of prices. You don't get a sustained increase from a supply shock, because supply shocks by definition are "one-off" events, as Cooper says. Or

• "one-time" events, as Robert Hetzel says. And Allan H. Meltzer. Or
  
• "temporary" as Tejvan Pettinger says. And Randal K. Quarles. And Milton Friedman, as paraphrased by Johannes A. Schwarzer.

Supply shocks don't create inflation, because supply shocks are temporary and inflation is sustained. That's the "evolved" view.

Five Key Points

You see where we end up:

1. We have defined "inflation" as a sustained increase in the price level.
   
2. We have replaced the term "cost-push" with "supply side" and we attribute supply side inflation to "supply shocks" and to nothing else.
3. We have defined "shocks" as temporary, one-time, one-off events that are incapable of creating sustained inflation and therefore, by definition, incapable of creating inflation.
4. We end up with demand-pull (or demand-side) inflation -- the "too much money chasing too few goods" inflation -- and supply-side (formerly cost-push) inflation, which is by definition temporary (and therefore not even inflation, by definition), and not something for the Federal Reserve to muck around with. And
   
5. We end up exactly as Scott Sumner said:

   "There's supply side inflation, which is created by shocks like sudden increases in oil prices, and then demand side inflation caused by overspending in the economy. It's really demand side inflation that the Fed is concerned about. There's not much they can do about supply side inflation."

Sumner's view is the dominant, fully evolved view, far as I can tell. Supply-side non-flation is caused only by economic "shocks". Therefore, there is no such thing as "cost pressure" and, in particular, no such thing as "sustained cost pressure."

I said earlier that I cannot lay out the chronology precisely. I am conscious of this as a weak point in this essay, and in my economics in general. So let me take a moment to strengthen the story a bit.

Frederic S. Mishkin's The Causes of Inflation is from September 1984. Mishkin wrote:

The conclusion reached in this paper is that in the last ten years there has been a convergence of views in the economics profession on the causes of inflation. As long as inflation is appropriately defined to be a sustained inflation, macroeconomic analysis, whether of the monetarist or Keynesian persuasion, leads to agreement with Milton Friedman's famous dictum, "Inflation is always and everywhere a monetary phenomenon."

To my ear Mishkin is saying that inflation was "appropriately" redefined some time between 1973 or '74 and 1983 or '84. Essentially, he is saying that inflation was redefined to work with other redefined or replaced terminology, in order to be able to reach a consensus that inflation is always demand-pull, always "a monetary phenomenon".

This validated the work of Paul Volcker (which, good grief, was still ongoing in 1984). The redefined terms validated the "simple premise, documented by centuries of experience, that the inflation process is ultimately related to excessive growth in money and credit". At the same time, the changes invalidated the concept of cost-push inflation, cost pressure as an economic phenomenon, and three decades or more of work on cost-push inflation.

 

If you define "supply shocks" as temporary, and "cost-push" as a temporary phenomenon induced by supply shocks, you are closing the door on the possibility of long-term consequences arising from continuing cost pressure. You are asserting, without evidence, that there is no such thing as long-term cost pressure.

In the process, you deny the possibility that an initially small cost problem could be responsible for the onset of a long-term economic decline. Your denial does not prevent this decline. But it will surely prevent you from understanding it.

Terms of the Times (2a): The evolution of cost-push

The whole concept of cost-push inflation has been pretty well extinguished from modern thought.

 - Arthurian

I cannot lay out the chronology precisely. But the concepts of inflation changed from demand-pull and cost-push, to demand-side and supply-side. Conceptually, this change was an improvement, as it finds supply and demand in inflation, just as econ theory finds supply and demand everywhere else in the economy.

But being conceptually better does not necessarily mean that the explanation of the cause of inflation is better, or that the statement of what must be done to stop the inflation is better. There is always an element of reality that may not follow from the elegance of theory.

The terminology itself appears to have evolved, from cost-push inflation, to cost-push created by supply shocks, to supply shock inflation, to supply side inflation driven by shocks. In the highly evolved view of Scott Sumner,

There's supply side inflation, which is created by shocks like sudden increases in oil prices, and then demand side inflation caused by overspending in the economy. It's really demand side inflation that the Fed is concerned about. There's not much they can do about supply side inflation.

Sumner handles both sides of inflation in a single sentence, and two short sentences later he has said all he wants to say about inflation policy, without even using the words cost or push, in one very tidy package.

Then we have Jason Welker defining Cost-push inflation: 

An increase in the average price level resulting from a decrease in aggregate supply.

A single sentence, brief,  rich in meaning and clear as can be. But it seems somehow less evolved than Sumner's view: Welker certainly sees cost-push as supply-side inflation, and attributes it to a drop in supply, but he still refers to it as "cost-push".

Dunno. Clearly he has not yet abandoned the term cost-push. But the link turned up in my "cost-push" search, and it is only a glossary term. Welker's thinking could be nearly as evolved as Sumner's. Mine, happily, is not.

 

Here is Mike Moffat in Cost-Push Inflation vs. Demand-Pull Inflation, quoting from the textbook by Parkin and Bade:

"Inflation can result from a decrease in aggregate supply. The two main sources of a decrease in aggregate supply are:

• An increase in wage rates
• An increase in the prices of raw materials

These sources of a decrease in aggregate supply operate by increasing costs, and the resulting inflation is called cost-push inflation"

Parkin and Bade have an increase in wages or prices creating a decrease in aggregate supply that results in inflation. It is as if they feel obligated to make cost-push a supply-side phenomenon, and they satisfy this need by inserting the words "a decrease in aggregate supply" between the increase in wages (or prices) and the resulting inflation. This is nowhere near as tidy as Sumner's statement.

The Parkin and Bade bit strikes me as clearly less evolved thought on the nature of cost-push inflation. They have to force-fit "supply" into their explanation.

 

From Arthur Burns and Inflation (PDF, 1998) by Robert L. Hetzel:

In November 1970, the minutes of the Board of Governors show Burns telling the Board (Board Minutes, 11/6/70, pp. 3115–17) that

prospects were dim for any easing of the cost-push inflation generated by union demands.

Union wage demands, leading to cost-push inflation. Again, Hetzel on Arthur Burns:

He believed that a central bank could cause inflation by monetizing government deficits but did not attribute inflation to that source in the early 1970s. Instead, he attributed it to the exercise of monopoly power by unions and large corporations...

Accordingly, President Nixon imposed wage and price controls August 15, 1971... Nevertheless, inflation rose to double digits by the end of 1973. So Burns attributed inflation to special factors, such as increases in food prices due to poor harvests and in oil prices due to the restriction of oil production...

"Special factors".  Hetzel adds:

For Burns, the source of inflation changed regularly.

For Burns, the source of inflation changed regularly. Today's economists often rely on the idea of a series of unrelated, temporary shocks when they explain inflation. It's okay to do it now, I guess. But Hetzel strongly objects to Burns doing it:

Economists use models to learn about the world and to explain how it works. A model imposes a discipline by forcing the economist to explain cause and effect relationships within a framework that yields testable implications. When experience falsifies those implications, the economist must return to the model and examine its failures. The economist cannot “explain” the model’s failure to predict by assuming that the world’s underlying economic structure changes in an ongoing, unpredictable way. The evidence from Burns’s own words shows that he did not use such a model to predict inflation and, consequently, failed to learn from the inflationary experience of the 1960s and 1970s.
...
For Burns, the source of inflation changed regularly. He believed this view only reflected the complexity of a changing world. As a consequence, he did not have a model of inflation that could be contradicted by experience.

A pretty severe scolding, that.

There's not a lot of meat in Hetzel's view, but at least there is a lot of detail. Still, his analysis has as much the feel of gossip as of economics. This sense is confirmed by the denials that accompany Hetzel's evaluation of Burns:

To  blame the inflation of the 1970s on an individual or on a group of individuals is too facile... Attributing policy failures to personal failures is a mistake that keeps one from learning. In this respect, it is helpful to view the high inflation of the 1970s as part of a learning process.

But not only gossip. We do find "special factors" offered as the cause of inflation, as long ago as the mid-1970s. But then, as Hetzel observes, "special factors are by nature one-time events. In 1974, inflation should have fallen as the effect of these one-time events dissipated..."

So we have the concept of the supply shock, if not the exact terminology, in the 1970s. We also have the temporary nature of supply shocks, though this insight may have been imposed on the 1970s by Hetzel, who was writing a generation later.

It looks to me as if Arthur Burns, Fed Chairman, presents a highly developed (but not evolved) version of cost-push. He knows cost-push is supply-side inflation, but does not seem to feel the need to focus on that aspect of it. He knows about special factors, though he does not call them "shocks". And in his day job, he searches for the cost-push pressure that is the source of the inflation. 

Hetzel presents this search as fruitless and pointless. But then, Hetzel's economic thinking is more evolved than that of Burns. Hetzel has seen, and Burns has not, the implementation of stringent monetarism under Paul Volcker. The conclusion of Hetzel's paper makes this revolutionary evolutionary step perfectly clear:

The fundamental divide in monetary economics is whether the price level is a monetary or a nonmonetary phenomenon. If the price level is a monetary phenomenon, it varies to endow the nominal quantity of money with the real purchasing power desired by the public. The central bank is the cause of inflation.
...
Burns conducted monetary policy on the assumption that the price level is a nonmonetary phenomenon. The Congress and the administration, public opinion, and most of the economics profession supported that policy. The result was inflation. That inflation eventually led to the present consensus that the control of inflation is the paramount responsibility of the central bank.

The post-Volcker Hetzel, studying the pre-Volcker Burns, shows in striking contrast the evolution of economic thought regarding everything that is cost-push.

Samuelson and Solow in 1960 evaluate economic conditions as well as cost-push stories, and even touch on what is today called "conflict" inflation:

But again in 1955-58, it showed itself despite the fact that in a good deal of this period there seemed little evidence of overall high employment and excess demand. Some holders of this view attribute the push to wage boosts engineered unilaterally by strong unions. But others give as much or more weight to the cooperative action of all sellers ... who raise prices and costs in an attempt by each to maintain or raise his share of national income, and who, among themselves, by trying to get more than 100 percent of the available output, create seller's inflation.

There is no reference here to supply shocks, though there is rudimentary reference to supply-side inflation.

Charles L. Schultze in 1959 offered economic analysis:

7. The largest part of the rise in total costs between 1955 and 1957 was accounted for not by the increase in wage costs but by the increase in salary and other overhead costs...

8. Overhead costs have been increasing as a proportion of total costs throughout the postwar period. This has intensified the downward rigidities in the cost structure of most industries...

11. Since it does not stem primarily from aggregate excess demand, but largely from excess demand in particular sectors of the economy, a slow increase in prices cannot be controlled by general monetary and fiscal policy if full employment is to be maintained...

No indication here, either, of "shocks" in this primordial thinking. And, perhaps surprisingly, there is less concern with wages than with other business costs. Like Burns in the early 1970s, Schultze in the late 1950s was in search of the cause of cost-push inflation.

 

Note in overview that the older analyses of cost-push are much more thorough and detailed than the newer commentary like Sumner's or Welker's. Note also the search, the change in importance of the search for the source of cost-push pressure.

Before Volcker, the economist's task was to search for the underlying cost driving cost-push inflation. After Volcker, the economist's task was to assert the supremacy of supply and demand, the quantity of money, the price of credit, and the primary mission of maintaining low inflation -- and to hell with cost pressure.

Terms of the Times (1): In the Keynesian era, cost-push "attracted widespread attention"

 

... prices started noticeably rising in 1956 and this upward trend continued through to 1960 with a short interruption in 1958. This persistent inflation attracted widespread attention for it was occurring in peacetime and did not seem to fit the traditional explanations of general price movements. The government and Congress actively engaged in the resultant debate...

-- Norikazu Takami

 

An ngram comparing the terms "supply shock" and "cost-push":

The ngram for the word "inflation"  peaks in 1978 and, like inflation itself, drops rapidly after 1980. For me, the rate of inflation explains why the blue curve here never goes as high as the red. Changes in the rate of inflation also may help explain why red goes down so much farther than blue goes up between 1970 and 2000, the low level of both thereafter, and the decline of both after 2010.

It is certainly easy to see the huge focus on "cost-push" between the second World War and the first Oil Crisis. Is it bigger than you thought? It is far bigger than I thought. But the whole concept of cost-push inflation has been pretty well extinguished from modern thought.

Years ago now, Nick Rowe commented at Josh Hendrickson's Nominal Income and the Great Moderation. Nick quoted Hendrickson:

Josh: “Rather, the view of Burns and others was that inflation was largely a cost-push phenomenon...”

and replied:

People forget (and maybe younger people never knew) just how common that view was in the 1970’s. It was common among economists as well as the general population. It was almost the orthodoxy of the time, IIRC.

"... maybe younger people never knew..." Yes, the whole concept of cost-push inflation has been pretty well extinguished from modern thought. But as you can see in the ngram above, from 1967 to 1980 (check my work) the term "cost-push" was used more than twice as often as the term "supply shock" has ever been used. What remains of cost-push has been removed from the lexicon -- and from modern thought -- by the change in terminology.

The whole concept of cost-push inflation has been pretty well extinguished from modern thought. That would be okay if there was no such thing as cost push inflation. It would be okay if there was no possibility that rising cost will cause a slowing of economic growth unless the cost pressure is relieved by inflation.

In other words, the whole long-term problem of declining economic growth could be due to cost pressure that we overlook because we took the "cost-push" concept and flushed it down the toilet.