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.

The starting point for Lipietz and Agliettafootnote3 is Marx’s interpretation of the function of money as a general equivalent. Monetary exchange is the point at which private productive activities receive social recognition or validation. The monetary constraint—that is, basically, the requirement on producers to realize the money value of their products—thus enacts the social ratification of otherwise separate and incommensurable production processes. There are not two constraints in business practice, as is implied by theories which give a false concreteness to the necessary distinction between real and nominal values: agents do not have to meet a real exchange constraint. Rather, the real constraint only operates to the extent that it finds effective monetary expression. Already a first general conclusion can be drawn on the relation between stability and the coherence of an established and well-functioning regime of accumulation. Monetary stability certainly requires specific institutions, but its first necessary condition is the proportionality of productive activities that enables each economic agent to meet monetary constraints via the realization of commodities produced.

It is necessary, however, to avoid attributing an exaggerated, deterministic, objectivity to monetary constraints. The role of credit in investment must be taken into account. Although Marx certainly explored the credit system, the Keynesian theory of liquidity preference is indispensable for a full account of credit relations. By means of credit, the agents of a capitalist economy can provide their own means of exchange and thus shift the direct constraint of realization or suspend its operation. Monetary constraints can now be met in two ways: either by the sale of output or by the issue of debt. The second possibility largely rests on social convention, on the existence or otherwise of a widely accepted view of current social and economic developments, which stabilizes the valuation of capital assets and limits the perceived risks of holding credit instruments secured on them. It is essentially shared, social, assessments of value which persuade economic units with surpluses to recycle monetary resources to deficit units and thus maintain the cohesion of exchange relations as a whole. As Aglietta emphasizes, the time horizon itself, over which enterprises and other agents can calculate, turns out to be an endogenous aspect of these credit relations: when expectations concerning future systemwide developments are stable and widely shared, then a wide spectrum of private liabilities will be regarded as liquid and will find a place in the portfolios of those units whose current operations generate a surplus of revenues over expenditures. Once again there is a close relationship between a well-functioning regime of accumulation and the fluidity of monetary mechanisms, but in this case the role of conventions—that is, relatively stable intersubjective representations of economic life—receives particular emphasis. (The abundant international credit available to Britain and the usa in the mid eighties did not mean that these countries had overcome the main barriers to sustained growth, but merely that they were widely believed to have done so.)