The Baffling New Inflation: How Cost-Push Inflation Theories Influenced Policy Debate in the Late-1950s United States

This essay examines how cost-push inflation theories, which highlight autonomous increases in wages and other production costs as a cause of inflation, played a decisive role in the policy debate over the interpretation of the price movements of the second half of the 1950s. In late 1956, economic experts, including politicians and journalists as well as economists, began to observe a peculiarity accompanying the ongoing inflation, namely, an apparent lack of excess aggregate demand, and they placed great emphasis on cost-push inflation theories in their interpretations of this peculiar phenomenon. When the recession of 1958 was accompanied by a steady increase in general prices, some experts took this as further supporting evidence for cost-push inflation. Against the background of this atypical inflation, the US Congress, then ruled by the opposition Democratic Party, initiated a large-scale inquiry into the nature and causes of inflation. These investigations produced one report in particular that emphasized cost-push theories. This essay as a whole shows how the controversy over the inflation of the late 1950s created a general perception that inflation can be at least partly controlled by measures that address cost increases in the private sector, and we suggest that this perception sowed the seeds of the Great Inflation later.