Meg Jacobs, MIT
"Inflation - The Permanent Dilemma of Postwar American Economic Culture"

Today's vigilant anti-inflationary policies of the Federal Reserve are only a recent manifestation of a deep-seated American postwar economic culture. We think of the postwar years as the golden age of American capitalism. But the story of a booming postwar economy absent economic struggle, contention, and group antagonisms is a myth. Far from achieving consensus, Americans engaged in highly contentious debates in mid-century, not least on the issue of inflation. Though modest by post1970s standards, prices rose in every year but two between 1945 and 1963. No matter how relatively tepid, Americans were in the grips of an inflationary psychology. In May 1952, Business Week dubbed inflation "the permanent dilemma." With large wage settlements, a commitment to Cold War spending, and a full employment policy, the postwar economy came under continuous inflationary pressures. In the annual negotiations between big labor and big corporations that captured national headlines, capital routinely sought increases in prices and profits while labor pushed for higher wages. Those forces combined to put stresses on any labor-management peace while passing on higher costs to the consumer. The idea of what became known as the "wage-price spiral" shaped how average Americans and policymakers thought about capitalism at mid-century.

Though Keynesians and liberal intellectuals saw mild inflation as the necessary price of growth and social stability, the public did not. Americans consistently lamented the continuous, albeit relatively small, increases in the consumer price index that characterized the period. From 1945 to 1975, the high cost of living ranked in public opinion polls as the number one domestic problem in 20 out of the 30 years. In September 1973, eighty-nine percent of Americans rated the high cost of living as the most important problem; Watergate was a distant second. Even in the 1950s, when annual inflation averaged less than three percent, Americans considered inflation the most important domestic problem in eight of ten years. From mortgages to milk prices, Americans lamented escalating prices that could undermine their quest for the good life.

This paper will explore how inflation, or rather the inability to control inflation, emerged as the central problem of American capitalism and the Achilles heel of postwar labor-liberalism. I will explore why middle-class voters consistently registered complaints about even the most modest price increases. This study will break new ground by arguing that this group of relatively unorganized voters and their concerns about the cost of living were the central conditioning element in the collapse of the New Deal Democratic coalition and the postwar liberal state. Historians have assumed that the stagflation of the 1970s and President Nixon's successful appeals to the silent majority signaled the beginning of the end of the New Deal Democratic Party. But in fact, as this paper will show, even the fear of inflation, absent any real inflationary conditions, made middle-class support of the New Deal state always tenuous at best.

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