Monetary Targeting, Wages and Inflation in 1970s Australia: Always and Everywhere a Distributional Phenomenon?

This paper examines the role of wages and the arbitration system in Australia's nine‐year experiment with official monetary targeting , initiated by the Fraser government in 1976. Instead of depoliticising inflation by turning it into a technical problem of monetary policy, monetarism in Australia was absorbed into the local view in which inflation was ‘always and everywhere a distributional problem’. Australian economists were generally sceptical of the specifically monetary claims of monetarism, but authorities used the targets pragmatically to support tight macroeconomic and fiscal policy, and to discipline the centralised arbitration system, with the government arguing before the commissioners that their wage decisions would determine whether limited monetary expansion resulted in employment growth or inflation. Ultimately, monetary targeting failed to provide macroeconomic stability or remove inflation from the political sphere of wage‐setting, and the Prices and Incomes Accord between Labor in government and the Australian Council of Trade Unions took over responsibility for managing inflation and unemployment.