Great Conversations About Monetarism #1

Last week, I was at a fine conference put on by the School of Development Studies here at the University of KwaZulu-Natal. Among the presentations was one by the splendid Jonathan Michie, who reports a July 1980 debate about the link between wages and inflation.

Mr James Callaghan, Leader of the Opposition asks “…will she tell us clearly whether increases in wages are a cause of inflation or not?”

Mrs Thatcher responds: Over a period the cause of increased inflation is increases in the money supply. Within money supply, there will be a different distribution both between the public sector and the private sector and within those sectors there will be increases in pay within the general money supply well beyond what are warranted, and they may come through in increases in particular products which will not necessarily affect the general price level.

Mr Callaghan: May I thank her for that reply and say that I did not understand a word of it.

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