After a lapse of two years I feel that I ought to give a more general background to the events which led up to my writing a critique of monetarism presented in this book.
As is generally known, the first quarter of a century after World War II (in sharp contrast to the experience after World War I) was one of unprecedented growth in the world economy, which was also more stable than anything experienced before in capitalist countries over such a long period. This does not mean that production increased at a steady rate year after year; there were fluctuations but they were relatively minor. In most years there was an appreciable increase in both production and productivity and in some years the recorded growth was relatively fast and in others it was relatively slow. On the average, in the post-war decades 1940-70 world industrial production is estimated to have risen by an annual compound rate of 6⅓ per cent -- a much higher figure than has ever been recorded before. Correspondingly, the increase in the growth of the productivity of labour in the industrial countries was in the order of 3-4 per cent a year or more, and this again was nearly twice the rate predicted on the basis of earlier experience.
This happy period (which in retrospect has come to be known as the 'Keynesian era') came to an end with the first 'oil shock' at the end of 1973, which quadrupled the world oil price in dollar terms and was the most important single cause of the unprecedented world-wide inflation of 1974-5.
It was by no means the only cause. Indeed throughout the post-war period there was a continual 'creeping inflation' in the industrial countries of not much more than 1-2 per cent a year -- as measured by the average annual increase in the prices of manufactures moving in international trade in dollar terms. But in the period 1969-73 (that is to say well before the rise in the world oil price) the inflation of the world price of manufactures (expressed in US dollars) accelerated to 5 per cent a year and this no doubt reflected the sharp acceleration in the rate of increase in money wages in most of the industrial exporting countries in the years 1968-9 (following upon the 'événements' in France in June____________________