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Incomes Policy as a Social Institution

In: Inflation, Open Economies and Resources

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  • Paul Davidson

Abstract

The use of game theory requires the belief of the analyst that inflation is a symptom of a struggle over the distribution of income in which agents ‘believe’ they can and do affect the outcome by certain actions. In contrast, neoclassical theory, as Samuelson pointed out, requires an assumption that he called the ‘Ergodic Hypothesis’ (1969, p. 184). It is ‘a belief in unique long-run equilibrium independent of initial conditions.’ Samuelson indicates that the Ergodic Hypothesis implies that ‘If the state redivided income each morning, by night the rich would again be sleeping in their beds and the poor under the bridges.’ (This view, Samuelson notes, ‘makes economics out of fairy tales.’)

Suggested Citation

  • Paul Davidson, 1991. "Incomes Policy as a Social Institution," Palgrave Macmillan Books, in: Louise Davidson (ed.), Inflation, Open Economies and Resources, chapter 6, pages 78-86, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11516-7_6
    DOI: 10.1007/978-1-349-11516-7_6
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