Michael R. Smith - Power, Norms, and Inflation

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Power, Norms, and Inflation: A Skeptical Treatment

Michael R. Smith

POWER, NORMS, AND INFLATION

A Skeptical Treatment

MICHAEL R. SMITH

ABOUT THE AUTHOR

Michael R. Smith is Professor and Chair of the Department of Sociology at McGill University. He has published many articles on a variety of subjects on the boundary between sociology and economics including the Canada-U.S. free trade agreement and the postwar inflation.

First published 1992 by Transaction Publishers

Published 2017 by Routledge

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Library of Congress Cataloging-in-Publication Data

Smith, Michael R., 1946-

Power, norms, and inflation : a skeptical treatment / Michael R. Smith.

p.cm. (Sociology and economics)

Includes bibliographical references and index.

ISBN 0-202-30429-9 (cloth). ISBN 0-202-30430-2 (paper)

1. Inflation (Finance)2. Power (Social sciences)3. Pressure groups.4. Economic policy.I. Title.II. Series.

HG229.S6241992

332.4' 1dc20

92-3686

CIP

ISBN 13: 978-0-202-30430-4 (pbk)

My most general intellectual debt is to my colleagues in the department of sociology at McGill. In their work, many of them meander quite happily across conventional academic boundaries. Most of them, it seems to me, are engaged in an attack on one or another disciplinary sacred cow. All of them are lively sources of criticism. Over the years they have provided me with a consistently congenial working environment. I am very grateful to them.

More tangible support to my research has been provided by a number of organizations. Research grants from The Social Sciences and Humanities Research Council of Canada paid for some of my early research on the postwar inflation and for release from teaching for a year, during which the largest part of the first draft of this book was written. For the last eight years, various colleagues and I have received funding for our research on labor markets from the Fonds pour la Formation des Cher-cheurs et Aide a la Recherche of the Government of Quebec. Having access to a relatively stable source of funds is an enormous advantage to a researcher. I am greatly indebted to the people who designed and administer the FCAR program. Last, but not least, the Faculty of Graduate Studies and Research at McGill has at various times bought me personal computers. Gordon Maclachlan set up the program out of which my computers were funded. As Vice-Principal for Research at McGill he was much more of a friend to research in the social sciences than was sometimes recognized. I know that my own research has been greatly assisted by the program he established.

John Hall, Richard Hamilton, Joe Smucker, and Axel van den Berg read and commented on parts of this book. Comments by them saved me from some errors and helped me to sharpen the argument in it. I owe a more fundamental intellectual debt to Richard Hamilton. Richard was my colleague for a number of years before he was lured away to Ohio State (presumably attracted, among other things, by the prospect of Big Ten football!). I regard him as a model of academic rigor and integrity. His influence on me has been considerable and all, I think, for the good.

Finally, Daniel and Abigail, who so far have displayed no interest whatsoever in the postwar inflation and its causes, certainly helped to keep in perspective the enterprise that has culminated in this book.

Compared to the frenzied last months of the Hungarian pengo when with "fine careless rapture ... it whizzed across the financial sky in 1946, multiplying itself 300,000 million millionmillionmillion times" (Cairncross, 1966:414), or to the Weimar inflation of 1922 to 1923 during which workers took their pay home in wheelbarrows (the mark depreciated by 75 x 109), or the Bolshevik destruction of the savings of their class enemies in the Soviet Union in 1922 (a rouble depreciation of 7.3 x 103 produced, apparently, by ineptness rather than design), or even to the more recent currency depreciations in assorted Latin American countries, the postwar inflation in rich capitalist societies is rather small beer.1 After fairly aggressive stabilizations in Austria and Japan in the late 1940s, inflation in the countries of interest in this study, though persistent, never exceeded 25% per year in even the most inflation-prone cases.

Nonetheless, however so humble (in historical terms), the postwar inflation in rich capitalist economies is of some interest. While there is no consensus on this point a plausible case can be made to the effect that even modest amounts of inflation are harmful, that unexpected inflations produce an arbitrary reallocation of wealth and income and that, because price instability disturbs the environment for rational calculation, inflation deters investment and reduces economic growth. The relative harmfulness of inflation is not my main concern in this book. But the fact that it is possible to see it as a practical problem affecting the welfare of large numbers of people provides a good reason for exploring the adequacy of the theories at our disposal for explaining it.

There is, however, a particular interest to these theories. The explanation of inflation has been, and principally remains, the province of economists. But the acceleration of inflation in the 1960s and 1970s and the various economic difficulties that accompanied it were seen by sociologists and political scientists as evidence of the serious inadequacy of conventional economic theory and, by extension, as reason to supplement or even supplant it with an alternative grounded in the different theoretic premises of sociology and political science. Inflation is only one of a number of subjects that previously has been, more or less, the private preserve of economists but has recently been subject to academic invasion. As we will see in some detail in later chapters of this book, sociologists and political scientists have applied the same sort of theoretic ideas to other macroeconomic outcomesin particular to unemployment and growth, with which inflation is usually thought to be connected. A similar invasion has taken place in other areasthe explanation of earnings differentials (e.g., Colbjrnsen, 1986), the operation of capital markets (e.g., Stearns, 1990; Mintz and Schwartz, 1990), the determinants and effects of international trade (e.g., Evans, 1979), and so on.2