Abstract: Monopoly and the Problem of the New Deal: Wage-Price Policy and Industrial-Labor Relations, 1945-1960

Samuel Milner


This paper examines how businesses adapted the industrial-labor relations of the New Deal-era to the inflationary climate that they encountered following World War II. Postwar Keynesian economists feared that powerful economic actors, especially the labor unions created during the New Deal, could siphon off macroeconomic stimulus to generate what became known as cost-push inflation. In order that private entities would not force the government into a choice between inflation and unemployment, these economists proposed that firms and unions would have to abide by a non-inflationary wage-price policy: holding the growth of labor compensation in line with the national trend of labor productivity and reducing prices where an industry’s productivity exceeded the national average. I argue that as postwar businesses learned to live with organize labor, they adopted this non-inflationary wage-price policy in order to contain the costs of their multi-year collective contracts. I begin with an analysis of General Motor’s pioneering attempt in 1948 to tie real wages to productivity growth, an initiative that quickly faltered once GM and other firms discovered that inflation could be used to smooth over labor relations. I then show how resurgent concerns about cost-push inflation in the mid-to-late 1950s led the business community to take a new look at wage-price policy, focusing especially on a collaborative effort led by General Electric to study the use of productivity in collective bargaining. I conclude with a case study of how the steel industry applied this new understanding of productivity during the storied steel strike of 1959. Though subsequent historical interpretation of this strike has emphasized a reactionary anti-union objective, I demonstrate that the steel industry’s efforts aligned with the expectations of liberal economists that wage-price policy would sustain the New Deal Order in the face of its inflationary implications.