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FEDERAL RESERVE BANK OF RICHMOND

MONTHLY

V o lu m e 58
N u m be r 10



OCTOBER

1972

The M o n t h l y R e v i e w is produced by the Research
Department of the Federal Reserve Bank of Richmond.
Subscriptions are available to the public without charge.
Address inquiries to Bank and Public Relations, Fed­
eral Reserve Bank of Richmond, P. O. B ox 27622,
Richmond, Virginia 23261. Articles may be reproduced
if source is given. Please provide the Bank’s Research
Department with a copy of any publication in which an
article is used.



The Economics of Incomes Policies
Following the lead of several Western European
governments, U. S. authorities have added in the
past 10 years a new set of anti-inflation weapons to
the arsenal of economic stabilization policies. Known
as wage-price, or incomes, policies, such instruments
have been designed to supplement and complement
the basic macroeconomic tools of monetary and fiscal
policy. In the early 1960’s, incomes policies were
introduced into the U. S. economy in the form of the
wage-price guidepost formula, or average produc­
tivity rule, which suggested that hourly wage rates
should rise no faster than the trend rate of advance
of economy-wide labor productivity. M ore recently,
of course, incomes policy instruments have constituted

and price-stability goals by maintaining aggregate
demand just at the point of full employment.

The

existence of market imperfections, however, drastic­
ally alters the picture.

Such imperfections, by gener­

ating substantial upward pressure on wages and
prices long before full capacity is reached, might make
it impossible for monetary-fiscal policies alone to
achieve

simultaneously

price-stability goals.

society’s employment

and

By decreasing demand, these

policies can control inflation that arises from market
imperfections but only at the cost of high unemploy­
ment.

The same problem exists when cost-push in­

flation stems from expectational forces.

That is,

the nucleus of the President’s New Economic Policy,

only by depressing the level of economic activity

initially in the form of the zero-growth wage-price

could demand-adjustment policy dispel those deeply
entrenched inflationary expectations manifested in ac­

freeze of Phase I and subsequently in the form of the
5.5 percent wage-adjustment criterion and profitmargin ceilings of Phase II.

celerating wage demands and spiraling prices. Thus,

Governments have resorted to incomes policies and

bat cost-push inflation when conventional instru­

supplementary policies may be sought to help com ­

other supplementary policy tools when monetary-

ments threaten to impose too high a toll in the form

fiscal policies seemed insufficient to achieve simultan­

of unemployment.

eously society's basic economic goals of full employ­

Generally, three types of supplementary policies

ment and price stability. Primarily oriented toward

are available: labor market policies, institutional and

the management of aggregate demand— and thus the

legal reforms, and incomes policies. Labor market

control

of demand-pull inflation — monetary-fiscal

policies consist of manpower training and retraining

policies may be unsuitable for combating the type of

programs, relocation subsidies, job information serv­

inflation that arises from the cost or supply side of

ices, etc.

the market.

at breaking up monopoly elements and other struc­

Such cost-push inflation emanates from

Institutional reforms include actions aimed

certain prevalent market imperfections and expecta-

tural-institutional impediments to the operation of the

tional forces that affect costs and aggregate supply.

free market.

Market imperfections include: (1 ) monopoly power

programs aimed at securing restraint in labor de­

possessed

mands regarding pay and in business decisions re­

by

firms,

unions,

and

other

pressure

groups; ( 2 ) impediments to the geographical and

Finally, incomes policies include those

garding prices.

occupational mobility of labor and capital; and (3 )

The purpose of this article is to examine the ration­

inadequacies in the provision of information on job

ale for incomes policies and to explain how such poli­

vacancies.

cies are designed to operate. Accordingly, the article:

If all markets were perfectly competitive,

resources freely mobile, and job information widely

( 1 ) explains how wages and prices are determined

available, there would be little need for incomes and

in the absence of incomes policies; ( 2 ) indicates how

other supplementary policies.

those policies are supposed to work in altering in­

In such an ideal econ­

omy, a general rise of wages and prices would not

flationary wage-price behavior; and (3 ) assesses the

occur before full capacity was reached, and monetary-

probable future course of such policies in the light of

fiscal policy could attain both society’s employment

criticisms that have been leveled against them.




FEDERAL RESERVE B A N K OF R IC H M O N D

3

Models of the Wage-Price Mechanism K n o w l­
edge of the mechanism of wage-price determination
is essential if policymakers are to employ incomes
policies to achieve anti-inflationary modifications in
wage-price behavior. For purposes of policy analysis
and prescription, the wage-price mechanism is often
represented by a set of equations. In fact, several
recent studies of the effectiveness of controls have
employed variants of a two-equation model of the
wage-price subsystem of the economy. These models
specify the chief determinants of the rates of change
of wages and prices. They also explain how cost
inflation develops in the absence of wage-price poli­
cies and suggest how those policies might be most
effective in arresting it. Comprising these models are
a wage equation and a price equation. The wage
equation identifies certain labor-market conditions
and cost-of-living influences that determine wage in­
creases.

The price equation then expresses how these

wage increases are transmitted into rising prices.

An

extremely simple version of this model is presented
in the following paragraphs.

It should be strongly

emphasized, however, that the model is a severe over­
simplification of a complex process and thus should
be interpreted with some skepticism.

Intended solely

as an expositional device, the model purposely ab­
stracts from many of the forces that influence wage
and price changes in the real world.

In short, real­

ism has been sacrificed in the interest of expositional
clarity.

unemployment rate ( 1 / u ) and with the past rate of
price inflation ( p — i ) . Specifically, the wage equa­
tion is w = a ( l / u ) -f- bp— i, where w and p — \ are
the respective rates of change (both expressed in
percentages) of current hourly wage rates and the
previous period’s price level, u is the unemployment
rate, and a and b are coefficients specifying how much
unemployment and price inflation contribute to the
rate of wage increase. In this equation the inverse
of the unemployment rate ( 1 / u ) serves as a measure
of the degree of excess demand or “ labor shortage”
in the labor market. Thus, the equation states that
the tighter the labor market— i.e., the smaller the
unemployment rate (or rather, the larger its recipro­
ca l)— the larger the rate of wage increase. The co­
efficient a attached to the unemployment variable ex­
presses the degree of response of the rate of wage
inflation to increasing pressure in the labor market.
A low coefficient indicates that the rate of wage in­
crease reacts only slightly to a tightening of the labor
market. A high coefficient, on the other hand, indi­
cates that the rate of wage increase is quite sensitive
to declines in the unemployment rate. The larger the
coefficient, the larger the increment in the propor­
tionate rate of money wage change accompanying a
given reduction in the unemployment rate.

Deter­

mining the size of the reaction coefficient a are
several factors, including: ( 1 )

the dispersion of

unemployment among separate labor markets; ( 2 )
the degree of trade union aggressiveness and bar­
gaining strength; (3 ) the extent of dissemination of

The W age Equation

M any m odels o f the w age-

job market information; (4 ) the substitutability of

price mechanization show the rate of change of wages

capital for labor in productive processes; and (5 ) the

(w ) varying directly both with the inverse of the

mobility and flexibility of the labor force.

Generally,

IN CO M ES POLICIES TO REDUCE THE RATE OF WAGE-PRICE INFLATION

Eq u atio ns of the W a g e - P ric e M ech an ism

WAGE

Percentage
rate of
change
of hourly
wages

EQUATION

w

PRICE

i
1
1
1
I Coefficient | Inverse of
1 linking rate 1 unemployJ of wage
, ment rate
, inflation to I
(unemployment1
J variable
j

a(l/u)

=

i
i
|
|
I
l
1
1

Percentage
rate of change
of price level

EQUATION

p

4




=

Incom es Policies
i

PricePast rate
expectations . of price
coefficient | inflation
1
1
I
1

bp-i

r

WAGE POLICIES
1. Replace wage equation with an official wage-adjustment
standard.
2. Reduce size of price-expectations coefficient b.
3. Modify structure of labor market to improve its efficiency.
Reduce size of coefficient a.
4. Tie wage increases to productivity via productivity bar­
gaining.

'
Percentage
rate of change
of wages

w

1

J
i
1
l
1
—

Percentage
rate of change
of productivity

q

PRICE POLICIES
1. Freeze prices. Constrain p to zero.
2. Raise rate of advance of productivity q. Includes produc­
tivity bargaining.
3. Profit-margin ceilings to insure that rate of price change p
varies in step with rate of change of unit labor costs.

M O N TH LY REVIEW, OCTOBER 1972

the size of the coefficient will vary directly with the
extent of unemployment dispersion, union aggressive­
ness, and information flow s; and inversely with the
degree of input substitutability and mobility.
Past rate of inflation ( p — i ) , the other independ­
ent variable in the wage equation, represents the
lagged cost-of-living factor in wage adjustments, as
workers seek to restore real earnings eroded by
rising prices. It also serves as a proxy for antici­
pated inflation, as workers endeavor, via wage gains,
to protect their earnings from expected future rises
in the cost-of-living. This direct link between costof-living increases and wage increases is expressed in
the last term of the wage equation. The price coeffi­
cient b measures the extent of labor’s wage reaction
or response to increases in the cost-of-living. A co ­
efficient of unity (on e) signifies that wages respond
fully to changes in the cost-of-living. Wages, in this
case, are said to be determined in real (purchasing
power) rather than monetary terms. On the other
hand, a price coefficient with a value of less than
unity signifies that the wage response to cost-ofliving changes is only partial and incomplete. In this
latter case, real wage rates will suffer partial erosion
from inflation. Generally speaking, the magnitude
of the price coefficient b depends on the extent of the
inflationary psychology of workers. The more con­
scious workers are of inflation and the more deeply
rooted are their convictions that it will continue, the
greater will be the weight they give it in formulating
their wage demands. Thus, the stronger the infla­
tionary psychology, the more sensitive and responsive
are wage demands to rises in the cost-of-living, and
consequently the closer will the price coefficient ap­
proach the value of unity.
The size of the price coefficient b plays a crucial
role in determining the nature of the path followed by
wage-price inflation. Below some critical level of
unemployment, a coefficient of unity (or greater) is
associated with an explosive, accelerating inflationary
process. A s previously mentioned, a coefficient of
one indicates a complete feedback of past price in­

unity in value. According to these economists, except
for temporary periods of discrepancy between actual
and anticipated price changes, workers always bar­
gain for real wages. Hence, expected price changes
will be completely incorporated in current wage
claims, i.e., money wage increases will respond fully
to price inflation to maintain real wage rates. Other
economists, however, argue— largely on the basis of
empirical findings of econometric studies— that in
both the long run and the short the coefficient is
normally much less than unity. But some members
of this latter group of economists now agree that
there may be a critical threshold rate of inflation
beyond which the price coefficient becomes unstable.
A t rates of inflation below this threshold there may
be little worker recognition of or concern over price
changes, in which case the price coefficient would
remain stable. But when inflation exceeds the thresh­
old rate for a certain period of time, the price co­
efficient starts to rise as workers assign increasingly
greater weight to price movements in formulating
wage demands. Moreover, the more pronounced and
protracted the inflation, the faster the coefficient
approaches its critical value of unity. In short, the
magnitude of the price coefficient may depend on
the severity and duration of inflation.
Normally
dormant at rates of inflation below the threshold of
perception and concern, worker response to discrep­
ancies between real and money wages becomes in­
creasingly active when rates of inflation are high.
Thus, the higher the rate of inflation, the stronger
the money wage reactions to price increases as work­
ers endeavor to protect the real value of their wage
increases.

In short, the more severe the inflation,

the stronger the link, as measured by the magnitude
of the price coefficient, between price and wage in­
creases. Moreover, the longer the inflation has per­
sisted, the more downwardly inflexible becomes the
price coefficient, i.e., the more resistant and independ­
ent this coefficient is to subsequent declines in the
rate of inflation.

creases into current wage increases, thereby gener­

T he Price E quation

ating another round in the inflationary spiral.

A co­

cost, or cost mark-up, model of business pricing

efficient of less than unity, on the other hand, implies

policy, the price equation represents the second link

a dampened, decelerating inflationary process.

In

D erived from a so-called full

of the wage-price mechanism.

Full cost pricing is

the extreme case of a zero coefficient, the circular

thought to be characteristic of many of the large,

price-wage-price linkage would be severed, thereby

oligopolistic firms that operate in American indus­

quickly terminating the inflation.

try.

Much controversy exists concerning the magnitude
of the price coefficient.

Many economists argue that

According to the mark-up model of the pricing

process, businessmen set prices on the basis of a
percentage mark-up applied to unit labor and unit

in the long run, where expected and actual rates of

material costs at some standard level of plant oper­

inflation are identical, the coefficient is necessarily

ation or capacity utilization.




FEDERAL RESERVE B A N K OF R IC H M O N D

Included in the mark­

5

up are the costs per unit of output of non-labor and
non-material inputs as well as the businessman’s
profit margin per unit of output.
In the cost mark-up formulation, several factors
may contribute to price increases, including increases
in standard unit labor and unit material costs and
expansion of percentage mark-ups or profit margins.
However, although rises in material costs and profit
margins may exert significant upward pressure on
prices in the short run, empirical studies have indi­
cated that increases in unit labor costs are the pre­
dominant price-raising factor in the long run and
often the paramount factor in the short run. For
purposes of exposition, it is useful to assume that
changes in unit labor costs alone influence prices and
that both profit margins and unit material costs are
constant.
If business profit margins, or mark-ups, and mate­
rial costs both remain constant, then price changes
will be strictly labor cost determined. In this simplest
of pricing models, a rise in unit labor costs will be
matched by an equiproportionate rise in prices as
businessmen protect their profit margins by trans­
mitting the cost increase into higher prices. In other
words, the percentage change in prices (p ) will
equal the percentage change in unit labor cost (u lc),
i.e., p = ulc. But since the percentage change in
unit labor cost is equal to the difference between
the percentage change of hourly wage rates (w )
and man-hour productivity ( q ) , the rate of price
change (p ) can be expressed by the price equation,
p = w — q.
The price equation, p = w — q, merely states that
businessmen ordinarily raise prices in order to protect
profit margins when wages rise faster than labor
productivity. A s noted earlier, the difference be­
tween the percentage increases of wage rates and pro­
ductivity is simply the percentage increase in unit
labor cost, that is, ulc =r w — q. Thus, according to
this oversimplified version of the price equation, the
rate of price inflation (p ) is determined solely by the
“ pass-through” of labor cost increases into prices.
More realistic versions of the price equation would

the backlog of unfilled orders relative to productive
capacity. Yet, even in this augmented, more-realistic
version of the price equation, changes in unit labor
costs would play an important role.
Th e Com plete P rice -W a g e -P rice N exus
T o­
gether, the price and wage equations summarize the
operation of the wage-price system, including the
mutual determination of wages and prices, and the
circular interaction process whereby wage increases
are transmitted into price increases, which, in turn,
feed back into wage increases, etc. The wage-price
model also provides a framework that may be used for
interpreting the rationale of incomes policies.
In this light, incomes policies are directed at alter­
ing the wage and price equations, thereby lowering
the rate of inflation. Incomes policies may be sub­
divided into wage policy and price policy, corre­
sponding to the particular equation the policy seeks
to modify. The reader should be warned, however,
that, because of the two-way interaction between the
wage and price equations, this classification of poli­
cies is somewhat artificial. For example, price poli­
cies may be employed not only to affect the price
equation but also to reduce the inflationary expecta­
tions term in the wage equation.
W a g e P o licy W a g e p olicy refers to actions di­
rected at modifying the wage equation in such a way
that wage increases will be smaller than if no policy
had been applied. W age policy can take at least
three forms. First, wage policy can replace the wage
equation with an official wage-adjustment standard.
For example, during the early 1960’s, an attempt was
made to obtain voluntary agreement by labor to sub­
stitute the constant guidepost criterion or average
productivity wage-adjustment rule for the terms in
the wage equation. This criterion stated that hourly
wage rates should grow no faster than the economywide percentage trend rate of growth of average pro­
ductivity ( q ) . In the current incomes policy, too, a
constant wage criterion occupies a prominent posi­
tion.

Phase II guidelines call for wage rates to grow

no faster than 5.5 percent, the sum of trend produc­

contain terms representing the percentage changes in

tivity growth, estimated to be about 3 percent per

unit material costs and profit margins.

year, and an intermediate target rate of price inflation

Rising mate­

rial costs attributable, say, to shortages of domestic­

(p* = 2.5 percent). Thus, although somewhat of an

ally produced materials and/or to currency devalu­

oversimplification, it may be said that policy at­

ations or increases in foreign prices that raise the
dollar price of imported raw materials are likely to

tempted to replace the wage equation, w = a ( l / u ) -fbp— i, with the voluntary guidepost criterion, w = q,

have a noticeable impact on final product prices.

in the early 1960’s and with the Phase II criterion,

Moreover, profit mark-ups may expand temporarily

w — q — p*, in 1972.
|
—

as firms exploit excess demand positions manifested

A s a second means of lowering wage inflation,

by increases in the unfilled orders/capacity ratio, i.e..

wage policy may be aimed at reducing the magnitude

6



M O N TH LY REVIEW, OCTOBER 1972

of the price-reaction coefficient b in the wage equa­
tion, thereby diminishing the price-feedback effect
on wages. Although an objective of both the earlier
guidepost program and the current New Economic
Policy, reduction of the size of the price coefficient
was not as urgent in the former episode as in the
latter.
Problems of inflationary expectations and priceinduced wage increases were not as severe in the
early 1960’s as in more recent years. The actual
rate of inflation in the early 1960’s was lo w ; and
consequently anticipations of inflation were virtually
absent when the guideposts were introduced. Thus,
the value of the coefficient b was probably small and
stable.
By m id-1971, however, the price situation was far
different from what it had been in the early 1960’s.
Instead of a prior period of price stability, policy­
makers in 1971 were faced with a severe inflation that
had been in process some seven years, with the rate
of price increase accelerating over much of this peri­
od. Expectations of permanent inflation were wide­
spread throughout the economy and clearly had a
major effect on wage behavior patterns. The price
coefficient in the wage equation, normally small in
magnitude, was apparently approaching a critical
value. The immediate objective of the President’s
New Economic Policy was to break the inflationary
spiral and simultaneously reverse the upward move­
ment of the price-feedback coefficient that was magni­
fying it. Since anticipations of price increases tend
to be influenced by current and recent experience,
the dampening of inflationary expectations required
a slowing of the actual rate of inflation. Inflationary
expectations were thought to be so firmly established
as to be impervious to all but the most drastic action,
which took the form of the 90-day wage-price freeze
of Phase I. This is a good example of price policy
interlocking with, and complementing, wage policy.
In this case, the goal of reducing inflationary expec­
tations and reversing the price coefficient in the wage
equation required a strong price policy.
If the purpose of Phase I was to reverse the direc­
tion of movement of the price coefficient, the aim of
Phase II has been to induce further declines in its
magnitude.

The plan for Phase II calls for deceler­

ating inflation accompanied by steadily-subsiding in­
flationary expectations.

Although no specific con­

ditions have been set for the lifting of controls,

Finally, structural policies aimed at improving the
efficiency of the labor market provide a third means
of altering the wage equation. Such measures, which
might include job-retraining programs, job-information services, and the provision of relocation subsidies,
as well as actions aimed at curtailing the market
power of labor unions, would be designed to reduce
the magnitude of the coefficient a attached to the
unemployment term in the wage equation. A smaller
unemployment coefficient signifies that any given
reduction in the level of unemployment will be asso­
ciated with a smaller rate of wage increase than
before. If successful, structural policies would render
wages less sensitive to changes in excess demand for
labor and thus improve the trade-off between wage
increases and unemployment.
Some economists, however, hold that structural
policies should be distinguished from incomes poli­
cies, the difference being that the latter attempt to
influence wage-price behavior without necessarily
altering the institutional structure of the labor mar­
ket. Although both structural and incomes policies
are directed toward the alteration of the wage equa­
tion, a distinction is generally made between the two
on the basis of whether or not they modify behavior
without altering the institutional framework of the
economy.
M ore succinctly, structural policies at­
tempt to eliminate or reduce monopoly power and
other market imperfections, whereas incomes policies
are aimed merely at inducing restraint in the exer­
cise of market power.
Price P o licy W age policy seeks to reduce price
inflation indirectly. In other words, wage policy
operates directly on the rate of money wage increase
(w ) and then relies on the reduced rate of wage
increase to affect the rate of price inflation (p )
through the price equation, p = w — q. By contrast,
price policy seeks to reduce price inflation directly by
altering the price equation. O f course, the direct
impact of price policy on die rate of inflation, if
successful, will be augmented by strong indirect
effects emanating from the wage equation. That is,
not only would price policy lower inflation directly
but also indirectly by reducing the price-feedback
into wages and thus the wage pass-through into
prices.
There are several ways that price policy might try
to reduce the rate of price inflation ( p ) .

First,

policy might try to boost productivity growth ( q ) ,

policymakers are hopeful that Phase II can hasten

which would reduce the effect on prices of given

the day when inflationary expectations will have

rates of increase in wages and other cost elements.

vanished and the price coefficient will have receded

For example, the purpose of the National Commis­

to more nearly normal levels.

sion on Productivity, appointed by the President in




FEDERAL RESERVE B A N K OF R IC H M O N D

7

1970, was to develop new ways to raise the rate of
productivity growth. Incidentally, it should be noted
that policies promoting productivity bargaining, i.e.,
union agreements to make productivity-enhancing
alterations in work-rules in exchange for wage in­
creases, could be classified as either wage or price
policies.
Price policy could also take the form of ceilings on
profit margins. By preventing unwarranted expan­
sions of margins, such ceilings would insure that
reductions in the rate of rise of unit labor costs would
be transmitted, for the most part, into lower rates of
price increases rather than into higher profits. Herein
lies the rationale for the Phase II standard for maxi­
mum profit ceilings. This standard prohibits price
increases that would raise profit margins above their
base-period average, i.e., the average margin prevail­
ing in the best two of the three years immediately pre­
ceding the wage-price program. It is true that the
profit standards of Phase II permit moderate expan­
sion of profit margins from their abnormally de­
pressed levels of 1970. Under Phase II rulings, prices
are allowed to rise roughly as fast as the rates of
growth of standard unit labor costs and other unit
costs. In addition, profit gains arising from the
current above-average rate of productivity growth
are permitted .1 Such disparities between actual and
longer-term average productivity usually develop in
the early stages of business expansion and, together
with the declining unit overhead (fixed) costs that ac­
company increasing volume, account for the normal,
cyclical recovery of profit margins from their trough
or recession levels.

But this allowable moderate ex ­

pansion of margins is not in conflict with the policy
ceiling as long as profit margins are below their base
period average.
Generally, an important principle of U. S. price
policy has been the passive, limited one of preventing
profit margins and profit’s income share from exceed­
ing their longer-term or base-period average levels.
It has been recognized that if policy is to receive the
support necessary to its success, it cannot be used to
achieve a redistribution of income.

Some observers,

should have two goa ls: ( 1 ) reduction of inflation and
(2 ) redistribution of income. But both the earlier
guidepost program and the current incomes program
were presumably intended to be neutral with regard
to longer-term or base-period average income shares.2
The Future of In com es Policies W h a t are the
longer-run prospects for incomes policies in the U. S. ?
A re such policies destined to become a permanent, or
at least a recurrent, feature of the economic system?
W ill it be necessary to maintain some form of wageprice controls beyond the current Phase II period?
Can one expect the social benefits (reduced inflation)
resulting from the extension of such controls to ex­
ceed their social costs (reduced freedom and effi­
ciency) ? Is it likely that incomes policies will have
any success in checking future inflation ? These ques­
tions are currently the center of vigorous controversy
and doubtless will continue to be hotly debated in the
months ahead.
Unfortunately, debate over the effectiveness of in­
comes policies cannot be resolved by empirical evi­
dence. For example, recent figures indicate that
there has been some moderation of the inflation rate
over the past year. W ere controls responsible? Or
is the slowing pace of inflation just the delayed result
of a slack economy? It is impossible to say. The
trouble is that no one can know precisely what would
have happened to inflation in the absence of controls.
Moreover, even if it were possible to separate the
impact of controls from other forces affecting infla­
tion, it would still be too early to declare incomes
policies a success. A policy might appear to have a
substantial short run impact, yet prove to have no
lasting influence. And so, unresolved by the record,
the debate continues.
The Case Against Incomes Policies
A large
group of observers are opposed to incomes policies on
the grounds that such policies : ( 1 ) interfere with the
market mechanism, thereby creating a distorted, in­
efficient pattern of resource allocation as well as a
structure of inflexible, disequilibrium prices; ( 2 )
divert talent, time, and effort away from productive
pursuits into the socially unproductive task of com ­

however, advocate more ambitious objectives for price
policy.

According to this view, incomes policies

1 bince April, the Price Commission has published industry trend
rates of productivity growth (q) to be used by firms in computing
rates of increase in unit labor costs reported in requests for price
hikes. As computed, these increases in unit labor costs (w ■ q)
—
will exceed those actually incurred (w — q) if the actual rate of
productivity advance (q) exceeds the trend rate (q ). Thus, when
productivity grows faster than its trend, prices will tend to rise
in greater proportion than actual unit labor costs, and profit
margins will expand accordingly.

8




2 The policy rules have been consistent with constancy of longer-run
or base-period distributive shares. Constancy of labor’s long run
relative income share requires that real wage rates grow as fast as
trend productivity. Alternatively, expressed in money rather than
real terms, constancy of labor’s share requires that the propor­
tionate rate of increase of money wages (w) equals the sum of the
growth rates of trend productivity (q) and the price level ( p ), i.e.,
w = q + p. In terms of the simple price equation, U. S. incomes
policy criteria call for prices to increase no faster than the differ­
ence between the growth rates of hourly wages and trend produc­
tivity, or p = w — q. But the policy rule, p — w — q, automatic­
ally implies the condition of labor share (and thus non-labor share)
constancy, w = q + p.

M O N TH LY REVIEW, OCTOBER 1972

plying with the policies; (3 ) create uncertainty;
(4 ) restrict basic personal and economic freedoms,
e.g., freedom of choice and freedom of contract; and
(5 ) entail an administrative or bureaucratic burden
in the form of the additional staff necessary to ad­
minister the controls. O f these criticisms, the first
seems to be the most significant. The critics point
out that a wage-price guideline in the form of an
economywide standard, if effective, is tantamount to
freezing the structure of relative wages and prices.
Such arbitrarily imposed structural rigidity is con­
trary to principles of economic efficiency, which call
for the pattern of relative wages and prices to vary
in response to dynamic changes in tastes, technology,
and resource supply.
Moreover, opponents of incomes policies contend
that such policies, in addition to being harmful, are
totally unnecessary as anti-inflationary instruments.
Thus, the monetarists argue that inflation is primarily
a monetary phenomenon, fully controllable by proper
regulation of the growth rate of the money stock.
Monetarists reject the explanation of cost-push in­
flation, which is a chief rationale for incomes policies,
and deny the existence of cost-push linkages running
from monopoly power to price inflation. Monetarists
maintain that a viable cost-push or market-power
explanation of inflation must imply an ever-increasing
degree of monopoly p ow er; otherwise, monopolists
could not continually inflate prices but would instead
merely effect a one-time upward adjustment of prices
to the level consistent with full exploitation of m o­
nopoly potential. This implication is rejected by
monetarists as contrary to the facts, which show little
evidence of increasing monopoly power.
A second group opposed to incomes policies, the
ncoinjlationists, also deny the necessity for such poli­
cies. Neoinflationists argue that chronic inflation,
if accurately anticipated and fully adjusted for via
purchasing power guarantees in all contracts, is not a
major social menace. In the opinion of neoinflation­
ists, the social cost involved in fighting inflation far
exceeds the cost of inflation itself.

Accordingly, the

government should abandon the policy objective of
price stability and jettison the incomes policy instru­
ment associated with it.
A third group, the antimonopolists, argue that in­
comes policies are unnecessary because procompetitive policies can stem inflation with greater efficiency
and smaller social cost.

Unlike monetarists, anti­

monopolists believe that market restrictions and m o­

to promote inflation via legislation that establishes
minimum wages, agricultural price supports, subsi­
dies, quotas, tariffs, and other protectionist measures
— all of which interfere with the effective functioning
of the market.
Contrary to the neoinflationists,
antimonopolists believe that the social costs of infla­
tion are high enough to warrant strong anti-inflation­
ary policy .3 But price-wage controls are not the
proper components of such a policy, claim the anti­
monopolists. Instead, policy should aim at the com ­
plete eradication of monopoly elements, government
subsidies, trade restrictions, and other structuralinstitutional impediments to price stability.
The Case for Incomes Policies Advocates of in­
comes policies include two grou p s: those who think
such policies should be temporary and episodic and
those who maintain that such policies should be
permanent. Generally in sympathy with the freemarket philosophy, the first group maintains that
price-wage policies are justifiable only as a short run
measure to be applied in specific crisis situations.
This group believes that the Phase II machinery
should be maintained just long enough to eliminate
inflationary expectations and to improve the wageprice performance of the economy.

After these goals

are accomplished, the controls should be dismantled.
W hile agreeing that prolonged application of wageprice controls may cause serious maladjustments,
distortions, and inequities, this group does not think
that these problems will be serious if the policy appli­
cation is limited to the short run.
Others, however, think that price-wage controls
are indispensable.

They argue that inflation has

become so firmly embedded in the economy that it
cannot be contained effectively without permanent
controls.

This group cites an impressive array of

psychological,

institutional, and

structural factors

supposedly rendering the economy more inflationprone than formerly.

The list includes: the exag­

gerated wage and job expectations of young workers
(w ho constitute a growing proportion of the labor
force) ; the truculence with which workers now press
their wage demands; and the fragmentation of society
into numerous competing factions, each motivated
by feelings of discontent and inequity to seek enlarge­
ment of its relative income share.

Additional forces

which, it is claimed, may be amplifying the endemic
inflationary bias of the economy include: the increase

nopoly power, especially that wielded by trade unions,
are important contributors to inflation.

Antimonop­

olists also point out that the government itself tends



3 Neoinflationists and monetarists could, of course, believe that re­
duction in monopoly power would be socially beneficial for reasons
other than its potential for reducing inflation.

FEDERAL RESERVE B A N K OF R IC H M O N D

9

in union monopoly power ;4 the greater willingness of
unions to exercise the market power in their posses­
sion ; certain changes in the age-sex composition of
employment; and shifts toward services in the outputmix. Both of these latter two forces are expected to
have an adverse effect on future productivity trends.
Proponents of permanent price-wage controls also
point to other, short run influences expected to inten­
sify inflationary pressures in the months ahead, in­
cluding the anticipated large deficits in the Federal
budget and the large number of key labor contracts to
be negotiated next year. All these reasons, it is
claimed, necessitate the continuation of anti-inflation­
ary controls to reinforce other policy weapons.
Advocates of incomes policies do not deny that such
policies are a “ second-best” approach to the problem
of inflation control. They recognize that the restor­
ation of competition in markets would help to reduce
inflationary pressures. But they think that such an
ideal procompetitive policy would be politically or
technologically impossible to achieve in the foresee­
able future. Thus, in view of the unavailability of a
“ first-best” procompetitive policy, a “ second-best”
incomes policy must be relied upon.
4 The alleged increase in union monopoly power is attributed to
certain factors that augment union strike capability, such as avail­
ability of unemployment compensation and food stamps to striking
workers and the increasing relative importance of fixed or overhead
costs in manufacturers’ total cost structures, which raises the po­
tential loss to employers of any strike-induced shutdown.

Prognosis It appears probable that, over the next
decade, incomes policies will be employed from time
to time as inflation flares up. Permanent application
of such policies seems unlikely, however. A large
segment of the public probably shares the same pro­
market sentiments and antipathy to controls harbored
by the opponents of incomes policies. Consequently,
this segment of the public would be unwilling to
assent to or tolerate permanent controls. But the
public also opposes inflation and expects policymakers
to combat it. Given the two constraints: (1 ) society’s
full employment target and ( 2 ) the structural-institutional imperfections of the economy, policymakers
will continue to experience difficulty in fighting in­
flation with monetary-fiscal policy. A further com ­
plication is that policy may be operating in an en­
vironment characterized by increasingly sensitive in­
flationary perceptions and expectations.

In principle,

one solution to the policy dilemma would be to eradi­
cate market imperfections, thereby eliminating a con­
straint to the effective use of monetary-fiscal policy.
Such a strategy, however, is likely to be rejected as
involving too severe a political cost.

Therefore, a

feasible alternative will be to resort to incomes poli­
cies.

Thus, a future marked by the periodic recur­

rence of wage-price controls would seem to be a dis­
tinct possibility.
Thomas M . Humphrey

Appendix
THE INFLATION-UNEMPLOYMENT TRADE-OFF
Not only is the two-equation wage-price model useful
both in describing the linkages of an inflationary wageprice interaction process and in interpreting the ration­
ale of incomes policies, but it also serves to specify the
set o f inflation-unemployment “ trade-offs” available to
the monetary-fiscal authorities. To sim plify the discus­
sion, the time lag on the price variable in the wage
equation is ignored.
The trade-off relation m ay be
derived by substituting the unlagged wage equation into
the price equation and then solving for the inflation
rate (p ). The resulting equation, p = — q / ( l — 6) +
[a/ (1 — 6 ) ] ( 1 /u ) , which contains all the inflation-deter­
mining relations inherent in the underlying wage and
price equations, indicates the trade-offs or “ menu of
policy choices” between inflation (p) and unemploy­
ment (u) attainable via monetary-fiscal policies alone.
In other words, the equation specifies the set o f alter­
native inflation-unemployment combinations available
to policymakers armed only with monetary-fiscal weap­
ons.
I f the set o f trade-offs is favorable, incomes
policies would be unnecessary. In this case the mone­
tary-fiscal authorities could purchase successive reduc­
tions in unemployment at the cost of only slight addi­

10




tional inflation. A n unfavorable menu o f trade-offs,
however, m ay w arrant the use o f incomes and other
policies designed to improve the set o f inflation-unem­
ployment combinations attainable via monetary-fiscal
policy.
The trade-off between inflation (p) and unemploy­
ment (u) depends on the size o f the bracketed term
[ a / (1 — 6] attached to the unemployment variable in
the trade-off equation. The larger this term, the worse
the trade-off, i.e., the larger the increment in the rate
o f inflation necessary to achieve a given decrement in
the unemployment rate. The reader will note that the
magnitude of the bracketed term [a/ (1 — 6 ) ] depends
crucially on the price-expectation coefficient 6 from the
wage equation.
The nearer the price-expectation co­
efficient is to zero, the lower will be the value o f the
bracketed term ; and the lower the value o f the brack­
eted term, the less sensitive will be the inflation rate to
reductions in the unemployment rate. I f both coeffi­
cients a and 6 were low, the policymakers would be
confronted with a favorable trade-off, because it would
be possible to engineer a reduction in the unemployment
rate via monetary-fiscal policy without generating much

M O N TH LY REVIEW, OCTOBER 1972

additional inflation in the process. However, the in fla ­
tionary potential o f any policy-induced reduction in the
unemployment rate rises rapidly when the price coeffi­
cient deviates significantly from zero. For example, a
rising price-expectations coefficient m ay have been
largely responsible for the rapidly deteriorating trade­
o ffs confronting the authorities during the roughly
three-year period immediately prior to the imposition of
Phase I controls in 1971. The closer the price coeffi­
cient b is to unity, the more unfavorable the trade-off.
In the limit, as b approaches its critical value o f one,
the bracketed term [ a / (1 — 6 ) ] becomes infinitely large
and the inflation rate (p) becomes indeterminate. A t
this point, the trade-off vanishes. In short, if b equals
one, it is impossible to decrease the unemployment rate
by increasing inflation. In fact, since the inflation rate
in this extreme case is infinitely sensitive to changes
in unemployment, attempts to reduce the latter via

monetary-fiscal policy will only serve to provoke explos­
ive, ever-accelerating inflation. Some economists now
believe that, in the long run the price-expectation co­
efficient becomes unity, and thus there is no permanent
trade-off between inflation and unemployment.
Justification for incomes and structural policies be­
comes quite compelling when the economy is rapidly
converging on a position of zero trade-offs at high
(socially intolerable) levels of unemployment. In this
case, conventional macroeconomic weapons, by them­
selves, are helpless. Attem pts to use monetary-fiscal
policy to lower unemployment will only serve to provoke
explosive inflation. Thus, incomes policies and struc­
tural policies must be utilized to twist the inflationunemployment relation in a more favorable direction,
thereby permitting m onetary-fiscal policy to operate
more effectively in achieving acceptable rates of in fla­
tion and unemployment, at least in the short run.

Bibliography
Ackley, Gardner. “ Observations on Phase II Price and
W a ge Controls.” Brookings Papers on Economic A c ­
tivity ( 1 :1 9 7 2 ) , pp. 173-90.
--------------- . “ A n Incomes Policy for the 1970’s.” Review
o f Economics and Statistics, 54 (A ugust 1 9 72 ), 21823.
Bronfenbrenner, Martin. “ Guidelines, Guideposts, and
Incomes Policies.” Chapter 17 of Income Distribution
Theory. Chicago: Aldine • Atherton, Inc., 1971, pp.
445-76.
Eckstein, Otto and Roger Brinner. The Inflation Proc­
ess in the United States. A study prepared for the
Joint Economic Committee, Congress of the United
States. W ashington: Government Printing Office.
1972.
Feige, Edgar L. “ The 1972 Report of the President’s
Council o f Economic Advisers: Inflation and Unem ­
ployment.” American Economic Review, 62 (Septem ­
ber 19 72 ), 509-16.
Fiedler, Edgar R. “ The Price-W age Stabilization Pro­
gram .” Brookings Papers on Economic A ctivity (1 :
1 9 72 ), pp. 199-206.
Haberler, Gottfried. “ Incomes Policy and In fla tio n :
Some Further Reflections.” American Economic R e­
view, 62 (M ay 19 72 ), 234-41.
Houthakker, Hendrik. “ Thoughts on Phase I I .” Brook­
ings Papers on Economic A ctivity ( 1 :1 9 7 2 ), pp. 19598.

and R. L. Teigen. 2nd ed. Homewood, Illinois: R. D.
Irwin, Inc., 1970, pp. 152-63.
Kessel, Reuben A . “ The 1972 Report o f the President’s
Council o f Economic A d visers: Inflation and Con­
trols.” American Economic Review, 62 (September
1 9 7 2 ), 527-32.
Lipsey, R. G. and J. M. Parkin, “ Incomes Policy: A
Re-appraisal.” Economica, 37 (M ay 1 9 70 ), 115-38.
McCracken, Paul W . “ Fighting Inflation A fte r Phase
Tw o.” Fortune, 85 (June 1 9 72 ), 84-85 and 157-58.
Perry,

George

L.

“ Controls

and

Income

Brookings Papers on Economic A ctivity

Shares.”
( 1 :1 9 7 2 ) ,

pp. 191-94.
Pitchford, J. D. “ The Usefulness o f the Average-Productivity W age Adjustm ent Rule.” Economic Record,
47 (June 1 9 71 ), 255-61.
Smith, David C. “ Incomes Policy.” Britain’s Economic
Prospects. Ed. R. E . Caves and Associates. W ash ing­
ton, D. C .: The Brookings Institution, 1968, pp. 10444.
Ulman, Lloyd. “ Cost-Push and Some Policy A lterna­
tives.” American Economic Review, 62 (M ay 19 72 ),
242-50.

Wage Restraint: A
Study o f Incomes Policies in W estern Europe. Berke­

--------------- and Robert J. Flanagan.

ley: University of California Press, 1971.

--------------- . “ Are Controls the A n sw er?” Review o f E co­
nomics and Statistics, 54 (A u gu st 19 72 ), 231-34.

W eber, Arnold R. “ A W age-P rice Freeze as an Instru­
ment of Incomes Policy: or the Blizzard o f ’ 71.”
American Economic Review, 62 (M ay 19 72 ), 251-57.

H ym ans, Saul H. “ The T rad e-O ff Between Unemploy­
ment and Inflation.” Readings in Money, National
Income, and Stabilization Policy. Ed. W . L. Smith

Weidenbaum, M urray L. “ New Initiatives in National
W age and Price Policy.” Review o f Economics and
Statistics, 54 (A u gu st 19 72 ), 213-17.




FEDERAL RESERVE B A N K OF R IC H M O N D

11

COAL M A K ES A CO M EBACK
IN W EST VIRGINIA
During the 1950’s and early 1960’s, U. S. con­
sumption of bituminous coal waned, and the number
of workers employed by the industry dropped drasti­

annual production fell from $854 million in 1951 to
$559 million in 1961.
Since 1969, however, this downturn has been re­

In W est Virginia, where coal mining ac­

versed ; and consumption has been increasing, pri­

counted for nearly one-fourth of all workers on non-

marily because of the rising demand of electric

agricultural payrolls in 1950, the state’s economy was

utilities for coal.

particularly sensitive to changes in the coal industry.

coal industry, moreover, has been relatively stable

cally.

Employment in the W est Virginia

x\verage daily employment in the state’s bituminous

during the 1960’s.

coal industry declined from 12 1 thousand in 1950 to

should continue in the near future, as the demand

approximately 43 thousand in 1961.

for electric power rises and coal remains a readily

The value of

Indications are that these trends

available energy source. Although coal mining today
accounts for a much smaller share of W est Virginia
employment and output than it did in 1950, West
Virginia remains the nation’s leading producer of
bituminous coal, which is in increasing demand. The
coal industry, therefore, continues to be an important
factor in W est Virginia’s economy.
Production A fter reaching a peak o f 176 million
tons in 1947, annual bituminous coal production in
West Virginia fell irregularly to 113 million tons in
1961. Rising steadily from the 1961 low to 153 mil­
lion tons in 1967, coal production again fell in 1969
to 141 million tons. During the 1950’s, the value of
production was subject to even greater fluctuations
than total production because of varying shifts in
coal prices.

Except for a slight decline in 1968, the

value of production increased at a regular rate after
1961.

Throughout the period from 1947 to 1969,

W est Virginia was continually the leading U. S. bi­
tuminous coal producer; and in 1969 the state pro­
duced over one-fourth of the nation’s total output.
The largest coal producing counties are Kanawha,
Boone, Logan, W yoming, McDowell, and M onon­
galia— each producing more than 10 million tons in
1970. W ith the exception of Monongalia, all are lo­
cated in the southern and central portions of the
state, where the largest proportion of W est V ir­
ginia’s coal is mined.

Monongalia is located in an

important, but smaller, coal mining region on the

12




M O N TH LY REVIEW, OCTOBER 1972

Pennsylvania border. McDowell had the largest out­
put in 1970 with 16.5 million tons, and Logan was

mines in the state.

second with 13.3 million.

underground operations, and of this number 527 em­

In recent years, approximately 90 percent of W est
Virginia’s bituminous coal production has been de­
rived from underground mines, with the remainder
attributed to surface mining techniques. The latter
type includes strip mining, which faces a rather

ployed less than 15 men. The number of under­
ground operations has decreased in recent years,

uncertain future in the U. S. because of recent at­
tacks by environmentalists and proposed legislation
to limit this form of mining. However, W est V ir­
ginia would not be affected as greatly by such legis­
lation as a number of other states where strip mining
is relatively more important to total production.

mines have been increasing; but, as pointed out

A t the end of 1970, 948 companies operated 1,350
O f these 1,350 mines, 900 were

although these mines continue to produce by far the
largest share of W est Virginia’s coal output.

Strip

above, they are still relatively less important in W est
Virginia than in a number of other mining states.
D em and and U ses

T h e pattern o f U. S. coal

consumption has undergone major changes over the

C h a rt 2

COAL CONSUMPTION AND EXPORTS
United States: 1950-1969
M illio n s o f N et Tons

Cem ent

Steel &
R olling M ills
O th e r M a n u fa c tu rin g & M in in g

Ind u stries

C okin g C oal

Electric P ow er C om panies

01
_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_______ I_
_
1950

Sources:

1952

1954

1956

1958

1960

1962

1964

1966

1968

N a tio n a l C oal A sso cia tio n , B itum inous C oal Facts; U. S. D e p a rtm e n t o f In te rio r, B ureau o f M ines, M in e ra ls Y e a rb o o k .




FEDERAL RESERVE B A N K OF R IC H M O N D

13

Ta b le

and the relatively low cost and high availability of

I

coal.

BITUMINOUS COAL PRODUCTION*
West V irg in ia : 1950-1969

A rise in the demand for electrical power was

foreseen during the fifties, but coal was not then con­

Year

P ro du ctio n
(Thousands o f
N e t Tons)

V a lu e o f
P roduction
(Thousands o f
D ollars)

A v e ra g e
V a lu e
Per T o n f
(D ollars)

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

144,116
163,310
141,713
134,105
115,996
139,168
155,890
156,842
119,468
119,692
118,944
113,070
118,499
132,568
141,409
149,191
149,681
153,749
145,921
141,011

754,370
853,894
741,421
6 93,594
541,370
653,388
824,043
875,587
635,201
621,003
5 97,222
5 58,525
578,293
634,794
693,572
726,096
753,851
800,683
7 75,720
807,811

5.23
5.23
5.23
5.17
4.67
4.69
5.29
5.58
5.32
5.19
5.02
4.94
4.88
4.79
4.90
4 .87
5 .04
5.21
5.32
5.73

sidered a likely future energy source.

The coal

mining industry had relatively low productivity, and
atomic power plants were being planned to replace
coal-burning power plants.

Because of automation

and a number of other factors, however, the coal in­
dustry is now competitive with other fuels.

superior source of fuel, has recently encountered
problems, such as fears by the public of thermal
pollution and radioactivity.

Also, current cost esti­

mates for the projected atomic power plants are far
higher than original cost predictions.

Coal, there­

fore, appears likely to continue as a leading source
of electrical power in the near future.
A number of manufacturers still operate coal-fired
power plants, and coal remains the fuel used by
many homeowners in their heating systems.

‘ Includes L ig n ite .
fA v e r a g e v a lu e p er to n is ta ke n as va lu e o f th e co a l a t
th e m ine.
S ource:
U. S. D e p a rtm e n t o f th e In te rio r, B ureau o f M ines,
M in e ra ls Y e a rb o o k .

last 20 years, as can be seen from Chart 2. In 1950,
the categories of electric utilities, coking coal, other
manufacturing and

mining

industries,

and

retail

dealers each accounted for approximately one-fifth
of the U . S. total.

By 1969, the electric utilities’

share had risen to over half; and the shares, as well
as total consumption, of the other three had fallen.
Coal-burning locomotives, which were once respon­
sible for the railroads’ leading demand for coal,
have virtually disappeared.

Despite the declines in

these four areas, however, the electric utilities’ rising
demand managed to bring U. S. coal consumption
in 1969 to its highest level since 1948.
Although not comparable to the electric utilities’
increase, exports of coal also rose during the 1960’s.
The W est Virginia coal industry, which produces a
relatively high-quality coal, has benefited in particu­
lar.

Much of the exported coal is used by foreign

steel industries for coking, which requires a highgrade coal.

W est Virginia’s ability to produce a

high-quality coal also accounts for the state’s large
share of the U. S. steel producers’ market for coal.
The upward trend in the utilities’ demand for coal
can be explained by the increasing demand for power

14




For in­

stance, atomic energy, which once seemed a far

M O N TH LY REVIEW, OCTOBER 1972

In addi-

tion, numerous future possibilities for the use of coal

Ta b le II

EMPLOYMENT, PRODUCTIVITY, AND EARNINGS IN
BITUMINOUS COAL INDUSTRY*
West V irg in ia : 1950-1969

Y ear

A ve ra g e
W o rke rs
Per Day

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

A v e ra g e Tons
Per M an
Per Day

120,888
111,886
102,996
88,985
60,011
66,231
7 1,996
71,201
62,437
53,847
51,062
43,611
43,763
44,534
39,308
41,008
43,769
44,064
42,471
**

6.41
6.66
6.97
7.78
8.86
9.38
9.65
10.05
10.66
11.68
12.07
12.99
13.57
14.44
15.31
15.90
15.96
16.01
15.77
**

A ve ra g e
H o u rly
E arnings
J
.
1
$2.25
2.32
2.51
2.51
2.57
2.81
3.01
3.02
3.28
3.27
3.26
3.21
3.29
3.41
3.60
3.67
3.85
3.90
4.17

are being explored by the industry.

Am ong these

are the production of a synthetic gasoline; sewage
treatment; and, surprisingly, a potential role in the
campaign against air pollution.
E m ploym ent and P rodu ctivity

E m ploym ent in

the W est Virginia coal industry reached its peak in
1940 when over 130 thousand men were employed.
By 1961, this figure had dropped to approximately
43 thousand, where it has remained for the past 10
years.

In addition to slack demand, the primary

cause of the drop in employment was the expanding
mechanization within the industry, which resulted
from low productivity and wage pressures.

Average

hourly earnings rose from $2.25 in 1950 to $4.17 in
1969. Despite this rising hourly wage rate, coal has
remained competitive because rising productivity,
which increased nearly two and a half times between
1950 and 1968, has partially offset rising wage rates,
thereby keeping labor costs (a major component of

*ln c lu d e s Lign ite .

price ) from rising. Because of the adaptability of the

fS e rie s n o t a v a ila b le p rio r to 1951.

industry, coal mining in West Virginia can now

**S e rie s fo r 1969 n o t a v a ila b le .
Sources:

U. S. D e p a rtm e n t o f Lab o r, Bureau o f Labor S tatistics,
E m p lo ym e n t a nd E arnings; U. S. D e p a rtm e n t o f In te rio r,
Bureau o f M ines, M in e ra ls Y e a rb o o k ; U. S. D e p a rtm e n t o f
the In te rio r, Bureau o f M ines, M in e ra l In d u s try Surveys.




anticipate a far brighter future than was envisioned
just 10 years ago.

FEDERAL RESERVE B AN K OF R IC HM O ND

Thomas Y. Coleman

15

BANKING IN THE CONSUMER PROTECTION A G E
William F. Upshaw

Banking in the Consumer Protection A ge, which first appeared as a series of
Monthly Review articles, reviews the development of consumer protection legisla­
tion in the United States, with particular emphasis on the Truth in Lending Act
and the Fair Credit Reporting Act.

In addition, important legislation involving

bank credit cards is examined, and the work of the National Commission on Con­
sumer Finance is discussed.

Reprints of Banking in the Consumer Protection A g e

are available upon request from Bank and Public Relations, Federal Reserve Bank
of Richmond, P. O. B ox 27622, Richmond, Virginia 23261.




M O N TH LY REVIEW, OCTOBER 1972


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102