A-105 '! Wien Schwarzhirngasse 10/17
s ept 9, 1981
Dear Amit,
Thank y u fir y >ur letter and for your manuscript m stagflation
Let me comment briefly on the manuscript. Everything rests on
y-Ur crucial assumption ( n page 2, bottom ) that firms are
nit well informed abiut the wages movements in other firms,
1. ) I cannot believe this assumption is realistic , independently
of which conntry itis. The c'llective agreements are not secret}
information on the wages the competitors pay is eagerly sought
and in fact obtained by managers; they are in many cases in touch
about these problems, and if the monopsony does not work any more
theycan easily spy at each other; the shifting odf labour from
plant to plant makes it easy to obtain information. ,
2. ) The assumption that firms know that their competitors are
subject to similar wage increases as they themselves is the
sufficient assumption for the Keynes- Kalecki c inclusion that they
will shift the cist increase°?o prices, without knowing r thinking
anything about macr ecmimic links f wages t c nsumpti n demand
3) I may be prejudiced because I adhere to the Kalecki-Keynes
esplanati n and I appr ach the stagflation fr m another angle:
I think t e restriction if demand ( y fiscal and m netary p licy- )
reduces pr ductivity n t nly its level but als1 its rate f growth;
if workers and uni ms do n t reduce their real wage target corresp ndingly
then wage c st rise this will be shifted to prices and via C'st f
living again ti wages ect There are if cause many other fortuitous
details *’ir example the sec nd Opec price rise in 79 and subsequently
has pr b&bly affected aggregate demand as well as prices and therefor
acted stagflationistically.
What you need to explain stagflation is only to remove the prejudices
wh : ch, make it,seem unnatural, which it is not; and to show why it
have ed
should accur in our times and not earlier ( presumably because
workers and unions are more resistant to unemployment ).
I just returned from Trieste; I suppose Krishna will tell
you all about it. I gave the paper on monetarism. ^ am eagerly
expecting your own paper on the subject- I hope you will soon send it
because the subject has become very topical.See the left-labour
memorandum by ^’rancis Cripps et alia which clearly touched this point.
