Gottfried Haberler, Incomes Policies and Inflation

This American Enterprise Institute policy volume assembles a prologue on Nixon’s New Economic Policy of August 1971, Haberler’s main analysis of incomes policies, and a concluding appendix on the Phillips curve. Its contributors have distinct functions: AEI supplies the public-policy setting and editorial frame, while Haberler, as the named economic contributor, develops the substantive chapters. The volume’s sequence is important. The prologue tests the ninety-day freeze against the problem of exit; the central chapters define inflation, guideposts, wage and price controls, and monopoly power; the final appendix denies that policy can rely on a stable long-run Phillips-curve trade-off.

Incomes policy has become the hottest problem of macroeconomic policy in almost all industrial countries.

The framing is international, but the immediate occasion is American. Haberler treats the freeze, import surcharge, and monetary upheaval of 1971 as emergency measures that can only be judged by what follows them. Controls may suspend visible price changes, but they do not by themselves restrain demand, alter wage bargaining institutions, or restore credibility. Hence the prologue turns from the spectacle of the freeze to the problem of transition:

The question remains: how can inflation be slowed during the breathing spell of the freeze so that the freeze can be lifted after ninety days without risking a spurt in prices and wages.

The central chapters reject a simple opposition between demand-pull and cost-push inflation. For Haberler, sustained inflation requires monetary expansion or rising velocity; wage-push matters because monopoly bargaining can force the authorities to choose between validating wage increases through inflation or resisting them at the cost of unemployment. This is why the volume distinguishes ordinary business pricing power from labor-market monopoly. Industrial concentration can alter relative prices or produce one-time price effects, but it does not normally generate a continuing wage-price spiral.

Industrial monopolies or oligopolies are not much of a problem as far as inflation is concerned.

The policy chapters then separate two meanings of “incomes policy.” One is guideposts, compulsory norms, or wage-price controls that try to substitute official judgment for market adjustment. The other is a reform program aimed at restoring competition and reducing institutional sources of wage-push: limiting special union privileges, revising minimum-wage and Davis-Bacon rules, reconsidering strike subsidies, using imports as a competitive check, and applying antitrust where monopoly is genuine. This contrast is the hinge of the book’s argument:

Thus incomes policy II tries to strengthen the market and to work with and through the price mechanism. Incomes policy I attempts to provide a substitute for market forces; it is beneficial in intent, but in actual implementation it is bound to hinder and disorganize the functioning of the market.

Haberler’s chapter on wage guideposts is sympathetic to their theoretical rule—average money wages should rise with average productivity under price stability—but skeptical of their enforceability. Average wages are not an administratively available lever; to control them officials must police relative wages, exceptions, job classifications, quality changes, and bargaining outcomes. The appendix carries the same anti-mechanical impulse into macroeconomics: the Phillips curve may describe short-run episodes, but expectations, institutions, union power, and policy credibility shift the relation over time.

Taken as a volume, Incomes Policies and Inflation is both a response to Phase I controls and a general argument about the limits of administrative anti-inflation policy. Haberler’s distinctive contribution is to combine monetary restraint with institutional labor-market reform: inflation cannot continue without accommodation, but disinflation imposed on an unreformed wage-setting structure will be unnecessarily costly.