Economic history · Nothing Left to Hold It
Eight steps, about twelve minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
This part takes as read that the eleven countries met the same dollar price for oil and inflated by very different amounts, and that pay, the currencies and money growth in 1974 have already been through one test.
This is part nine of twelve, and it is the part the rest of the series has to be able to stand on. The eleven are the United States, Japan, West Germany, the United Kingdom, France, Italy, the Netherlands, Sweden, Switzerland, Canada and Australia.
Two more candidates for the difference between them go through the test you have already watched three others take: the productivity break after 1973, and how fast each country's money stock grew in the three years before the shock. One fails and one passes.
The test can do one thing and only one. It puts two orders side by side and reports how closely they agree, against a bar of 0.618 for eleven countries. A rank agreement of +0.800 says the two lists came out in a similar order; the candidate that fails comes out at +0.264. The second half of this part is what the passing result is made of: the column that ranked holds two named classes, a splice and one row with no class at all, and the statistical offices were rebuilding the price indices that column is set against while the inflation ran.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 8
Japan turned an hour of work into 8.10 per cent more a year from 1965 to 1973. After 1973 the rate of that gain fell in every one of the eleven countries here.
Australia went from 2.46 per cent a year before 1973 to 1.64 per cent a year after, a break of 0.82 percentage points a year, the smallest of the eleven.
A second measure ran over the same countries and the same two windows. Total factor counts output against labour and capital together rather than against hours alone, and the Penn World Table publishes it. Output per hour is not published there: it is built here from three of that table's columns.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Japan's output per hour grew 8.10 per cent a year up to 1973. Over 1973 to 1985, what was the figure?
For scale. The two measures do not even put the countries in the same order. Japan comes first on the break in output per hour and sixth on the break in total factor productivity.
Put the eleven in order by the size of their break in output per hour, then in order by their in 1974, and compare the two orders.
Matching orders score plus one, reversed minus one, no relation zero. An eleven-country test has to reach 0.618 before agreement is close enough to be unlikely by chance.
The inflation had spread beyond a few prices. In January 1978 the Council of Economic Advisers called the rise in fuel and food prices the dominant influence. Its Report said increases in one sector pushed prices up in others, rather than producing a readjustment of relative prices around a stable overall rate of inflation.
The Office for National Statistics titles its chart of the British case “Inflation became more broad based in the 1970s”. That is one country, on a back-series the article calls indicative, and the same section gives food a considerable role.
The breaks are not all the same size: they run from 0.82 to 4.67 percentage points a year, while the 1974 inflations finished 16.18 percentage points apart.
Rank the eleven by the size of their productivity break, and rank them by their inflation in 1974. How did the two orders compare?
The Bank of England published a staff working paper on the period in July 2025. It says discussion of the causes of the 1970s inflation in Britain has centred on the relative importance of bad luck and bad policy.
Bad luck, in the paper's use, means the unusually large commodity price and supply-side shocks of the 1970s. By bad policy it means failures in and in prices and incomes policies.
The paper has then to place the British record against those two camps, and its own title calls British monetary and exceptional.
The National Bureau of Economic Research says much the same of the field. Its own description of its retrospective volume on the period calls the immediate cause of the rise in inflation the subject of considerable debate.
The Bank of England's 2025 paper sets the British record against the two camps, bad luck and bad policy. Which way does it come down?
Module 9 of 12 in Nothing Left to Hold It
[1] How much each of the eleven economies produced for every hour worked, year by year: Penn World Table 11.0, carried by the Federal Reserve Bank of St. Louis on FRED.
[2] Each country's broad money stock, its narrow money stock and its pay, on one panel across all eleven: Jorda-Schularick-Taylor Macrohistory Database, release 6.
[3] Consumer price inflation in each of the eleven countries, year by year: Organisation for Economic Co-operation and Development, consumer price indices, carried by the Federal Reserve Bank of St. Louis on FRED.
[4] What the American economic authorities said in January 1978 about how far the inflation had spread: Council of Economic Advisers, Economic Report of the President, January 1978, carried by FRASER.
[5] Which parts of the shopping basket were pushing British inflation up through the 1970s: Office for National Statistics, Consumer price inflation, historical estimates and recent trends, UK: 1950 to 2022.
[6] How the argument about what caused the 1970s inflation is grouped today: Bank of England, Staff Working Paper No. 1,135, "Muddling through or tunnelling through?", Michael Bordo, Oliver Bush and Ryland Thomas, July 2025.
[7] What the later studies of the period are arguing about: National Bureau of Economic Research, The Great Inflation: The Rebirth of Modern Central Banking, Michael D. Bordo and Athanasios Orphanides, eds., 2013.
[8] The case that the oil shocks were not what produced the stagflation: National Bureau of Economic Research Working Paper 8389, "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative", Robert B. Barsky and Lutz Kilian, July 2001.
[9] The case that the oil shocks were what produced the stagflation, answering the other one: National Bureau of Economic Research Working Paper 14563, "The Supply-Shock Explanation of the Great Stagflation Revisited", Alan S. Blinder and Jeremy B. Rudd, December 2008.
[10] What the American economic authorities said in February 1982 about stagflation and about their own money measures: Council of Economic Advisers, Economic Report of the President, February 1982, carried by FRASER.
[11] How a European central bank reads the two causes today: Banca d'Italia, Questioni di Economia e Finanza No. 790, "Inflation and energy price shocks: lessons from the 1970s", Francesco Corsello, Matteo Gomellini and Dario Pellegrino, July 2023.
[12] What the Federal Reserve did to its own money measures in February 1980, and why it said it did: Board of Governors of the Federal Reserve System, "The Redefined Monetary Aggregates", Federal Reserve Bulletin, vol. 66 no. 2, February 1980, carried by FRASER.
[13] When the Committee stopped setting targets for the money aggregates: Federal Reserve Bank of St. Louis, "Managing a New Policy Framework: Paul Volcker, the St. Louis Fed, and the 1979-82 War on Inflation", Kevin L. Kliesen and David C. Wheelock, Review vol. 103 no. 1.
[14] What the United States changed about its consumer price index, and when: U.S. Bureau of Labor Statistics, Handbook of Methods, chapter 17, The Consumer Price Index.
[15] What Japan changed about its consumer price index over the same years: Statistics Bureau of Japan, 2025-base Consumer Price Index explanatory volume, section VI, the history of the consumer price index.
[16] The argument over how a price index should treat the cost of owning the house you live in: Robert Gillingham and Walter Lane, "Changing the treatment of shelter costs for homeowners in the CPI", Monthly Labor Review, June 1982, U.S. Bureau of Labor Statistics.
[17] How much of the measured American inflation the housing treatment was carrying: Alan S. Blinder, "The Consumer Price Index and the Measurement of Recent Inflation", Brookings Papers on Economic Activity, 1980 No. 2.
[18] What a central bank says now was carried forward from the period: Carl E. Walsh, "Inflation Surges and Monetary Policy", Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, November 2022.
[19] What the episode left behind in how central banks are set up: Deutsche Bundesbank, "Inflation - lessons learnt from history".
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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