8 
the average wage exceeds that of the average productivity). Another 
view attributs inflation to the wage push exerted by 
trade unions. Actually it was a matter of surprise that things 
worked relatively well, because many economists had thought 
that the system could not work without an industrial reserve 
army. It has to be noted, though, that there existed a 
substitute for that in the influx of labour from agriculture, 
from households and from abroad. 
The acceleration of inflation started only in the seventies. 
Could this be interpreted as a delayed but necessary consequence 
of a long period of full employment? I think that the well 
known special factors - rise in raw material and food prices, 
the oil shock, and a wage explosion which can be understood 
in political terms - are sufficient to explain what happened. 
I shall not go into the further development of inflation from 
the middle 70'ies which was influenced by weakening of 
productivity growth which inturn resulted from unemployment 
and restrictive policies. This decade of inflation gives rise, 
however, to some observations. 
It is remarkable that high and sometimes exorbitant (as in 
Israel!) rates of inflation have never led to hyper 
inflation as in the time after the first world war in Central 
Europe. Neither unlimited increase of velocity of circulation, 
nor de-monetisation and dis-intermediation has even so much