Full text: Brief von Josef Steindl an Amit Bhaduri

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.

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