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Economists tend to be quite skeptical of the ability of sociologists to contribute to our understanding of traditionally economic subject matter like inflation. This book, accessible to anyone familiar with freshman economics, can only reinforce this skepticism as it concludes that "the sociological account of the postwar inflation in rich capitalist societies is seriously inadequate and adds only a little to . . . the main elements of the standard economic account." (p. 6)

First, the facts: after the Korean War, inflation rates were low and similar across nations; in the mid-1960's, rates started to increase but were still similar across nations; after 1973, inflation rates rose everywhere but at widely different rates; inflation rates came down in the 1980's but much faster in some countries than in others. Any adequate explanation of the postwar inflation experience must first explain why prices rose and, second, why prices didn't subsequently fall on their own or why governments failed to take adequate anti-inflationary measures.

The tales begin with an elaboration of the basic Keynesian, monetarist, and rational expectations models. In all three models, inflation results from government-induced excessive aggregate demand. The consensus among economists is that the narrowness of the bands of inflation across countries prior to 1971 is attributable to the fixed exchange rate regime and the subsequent dispersal to the shift to flexible rates. The acceleration of inflation rates in the 1960's was caused by the U.S.'s attempt to finance both the Vietnam War and the Great Society without tax increases. Economists part company on the rest of the story. Keynesians view the steady, early postwar inflation as the outcome of reasonable government policy while the stagflation of the 1970's resulted from the inability of markets to clear, downward inflexibility of prices, and inept policy responses. Monetarists claim that both the steady, early postwar inflation and stagflation originated in mistaken policies.

The next chapter considers several theories that argue that inflation results from the actions of unscrupulous and short-sighted politicians: self-seeking bureaucrats finance popular spending programs by monetizing deficits rather than unpopular taxes or politicians enact an expansionary policy for the short-term benefits of lower unemployment while ignoring the inflation that will eventually develop or governments as debtors gain from unexpected inflation or any of a number of other possibilities. The strongest piece of evidence consistent with a public choice account is that countries with an autonomous central bank have experienced less inflation.

The book turns to three theories in which inflation is a by-product of the process of secular decline. These theories (unbridled demands, institutional sclerosis, and hegemonic decline) seem dated by their overriding concern with the stagflation of the 1970's and really weren't developed to explain inflation, anyway. A later chapter discusses Marxian crisis theories, but these add nothing to the understanding of postwar macroeconomics except heated rhetoric.

The sociological account claims that the postwar inflation was produced by a class-based distributional conflict. The sustained full-employment following World War II shifted the balance of bargaining power to workers enabling them to translate their aspirations for improved living standards into higher wages. This wage-push mechanism led to inflation, but deflationary policies were ruled out by a politically empowered working class.

The sociological account is unconvincing on both empirical and theoretical grounds. The time series evidence on worker militancy, wages, and prices required for the wage-push explanation is not robust. Many of the institutional changes supposed to have induced workers to seek higher wages and forced employers to concede cannot be verified. The key component of the sociological account is the dubious assertion that deflationary policies are precluded because such policies would threaten disorder. Yet, an inflationary full-employment policy is likely to be a greater threat to social peace than a deflationary policy in which the costs are borne by a small segment of workers.

Two chapters are devoted to the question of whether a neocorporatist program of centralized bargaining and social democratic government provides a superior economic performance. There are both advantages and disadvantages, so its ultimate feasibility is an empirical question. But, it's hard to bring forth convincing evidence either way.

The author aptly faults economic sociology for its tendencies to relabel commonplace economics and to exaggerate the importance of social classes. Economists do economics by convincing other economists. So, if sociologists are to successfully do economics they must convince economists. Stale references to the class struggle will, at best, be ignored. However, there is no reason why the sociological tools of behavioral norms and power (factors scandalously neglected by economists) cannot be convincingly applied to economic phenomena as explanatory variables. A starting point would be to demonstrate how a given norm would emerge out of a world of self-interested individuals.

David A. Latzko Business and Economics Division Pennsylvania State University, York Campus office: 13 Main Classroom Building phone: (717) 771-4115 fax: (717) 771-4062 DXL31@psu.edu www.yk.psu.edu/~dxl31