At the end of the 1980s a word was pronounced in London and New York which had virtually dropped out of economic vocabulary at the start of the decade—stagflation. The Reagan and Thatcher booms are over and their successors have been left to grapple with a legacy of financial disorder and industrial decay. War in the Gulf, apart from all its other dangers, will entail heavy economic costs for both the United States and Britain. Even without the Gulf crisis, however, economic developments have been increasingly adverse: by the beginning of this year both the us and the British economies were in recession, in spite of rising inflation rates, and a familiar policy dilemma was posed once again—either a degree of price stabilization at the cost of deeper recession or some growth at the cost of increasingly immoderate doses of credit expansion.

Of course, such dilemmas unfailingly recur. Concrete economic processes are always cyclical. Stabilization or equilibration mean in practice that a cyclical pattern has become more ‘virtuous’—the same policy trade-offs recur but in a less acute, more manageable form. It is doubtful, however, whether the macroeconomic conjuncture today is more favourable than ten or twelve years ago. On the one hand, inflation is less likely to accelerate: the weakening of trade unions has deprived most wage-earners of prompt and full compensation for price increases, and the deterioration of social-security systems has compromised the indexation of welfare payments. As a result the macroeconomy is probably more stable in the face of inflationary shocks, which take longer to propagate and are less likely to develop a cumulative effect. On the other hand, the policy-makers’ armoury is depleted by the absence of a key weapon—the big crunch. It is now almost inconceivable that the us economy would be subjected to a repeat of the Volcker shock of 1980, since neither the fragile financial system nor a precarious productive structure could withstand the blow. The same is even more true in the field of international economic relations, which have still not fully recovered from the disruption of trade and investment flows provoked by the us credit squeeze of ten years ago. Thus, if the economy is somewhat more robust in the face of upward, inflationary disturbances, it is more vulnerable to sudden or intense contractionary pressures. The overall constraints on policy have probably tightened.

It will be suggested here that the re-emergence, on both sides of the Atlantic, of stagflationary phenomena, in a modified but no less virulent form, represents the failure of neoliberal strategies to overcome the barriers to sustained economic development; and that the economic history of the last decade, sometimes interpreted as a rupture with the previous economic model, is more accurately seen as a cycle within that model, although the cycle was admittedly of a particularly violent and disruptive character. However, it is not claimed that neoliberal strategies have had little effect; on the contrary, there have been profound effects on every aspect of social life. Neither is there any attempt to deny the multiple adaptations of economic agents—enterprises, households, governments—to changed economic circumstances. The argument here is much more circumscribed: what is being rejected is the hypothesis of a new regime of accumulation, that is, of a reorganized productive system endowed with appropriate regulatory structures, which is capable of sustained and consistent development. Continuing monetary disorders are at the same time an expression of this lack of reorganization and an additional source of instability and uncertainty in economic life. Currently the sphere of monetary and financial relations displays a persistent build-up of inflationary pressures. Although the partial and delayed indexation of popular incomes continues to mitigate the effect of these pressures on the general price level, their inexorable result in the medium term is increasing rates of open price inflation. Rates of inflation have been rising in oecd countries since 1986. Since 1987 inflation in the usa has been higher than the average rate for Western Europe; in Britain rates have been above average since 1985. Policy-makers have no convincing response: on the one hand, Western economies will not bear another round of monetary ‘disinflation’ on the Volcker pattern; on the other hand, the thoroughgoing reform of productive structures needed to drive down social costs, to restore balance among sectors, and to expand the value of goods and services produced, still lies beyond the horizon of existing strategies.

One implication of this view is that the field of possible political and economic initiatives is more open than might be supposed. Western societies are not faced with a successful ‘settlement’,footnote1 analogous to that of the postwar years, which narrowly defines a particular path of social advance and closes off competing institutional arrangements. Even the central institutional result of the neoliberal programmes, namely the restored social legitimacy of the enterprise, is more ambivalent and less definitive than it might appear. The coming inflation does not mean catastrophe, but it does imply the persistence of serious and uncontrolled economic dysfunctions which will continue to invite attempts at radical reform.

A relatively unrecognized achievement of the Regulation School has been its integration of an account of monetary phenomena into the general framework provided by the notion of a regime of accumulation.footnote2 The main features of this account will be recalled here as a basis for an assessment of recent monetary policy. In a sense the Regulationist literature tries to synthesize Marxist and Keynesian monetary concepts. The common element of the two traditions is a rejection of dualism, of the hypostatized dichotomy of real and monetary relations that survives within the increasingly baroque constructions of economic orthodoxy.