ts. Contemporary policy requires new definitions of the most basic concepts - money and credit - not just in a national framework, but in a global system of fully integrated national components. Apart from monetary theory, the theory of the economic system underlying Fed strategy is essentially a nineteenth-century conception that is closer to myth than to reality. Economic policy based on such a conception disregards the huge concentrations of economic and financial power that characterize the private sector today. Without recognizing the reality of huge power blocs in the money and real economies, central bankers are unlikely to gain control of financial speculation in domestic markets or to curb massive international capital flows that have already effectively defeated concerted central bank intervention to stabilize exchange rates. The emergence of stagflation in the 1970s splintered the economics profession regarding the theory of inflation and the means to combat it. The rise in the price level was not simply the result of excessive growth in the monetary aggregates, and therefore restraining monetary growth was not a satisfactory remedy. Central bankers like Arthur F. Burns, and Henry Wallich, and other researchers including Arthur Okun, Abba Lerner, David Colander, and Sidney Weintraub searched deeper into the economy's institutional workings for more effective anti-inflationary mechanisms (see Pechman, 1993, esp. pp. 3-141). Their anti-inflation solutions involved variations of an incomes policy to supplement monetary and fiscal policies. CEA Chair Schultze described the complex process of inflation in 1978 (Schultze, 1978, p. 150). Even when excess demand was not a problem (as in 1977-78), he observed, inflation can persist at unacceptable rates (i.e., the underlying rate of 6 to 6 1/2 percent in those days). Expectations, cost - push, food price spikes, OPEC oil price hikes, and dollar depreciation were identified as infla...
