On pages 262-263 of President Nixon: Alone in the White House, Richard Reeves talks about inflation:
"But
Nixonomics was shot down by Nixon----and by some bad luck. The 'Nixon
Game Plan,' as it was called in the beginning, was pretty basic
Republican economics...The idea was to hold down federal spending while
the Federal Reserve Board restricted money supply enough to cut demand
enough to raise unemployment enough to moderate wages and prices enough
to stabilize inflation."
Well, I suppose that's one way to get
wages down: to increase unemployment so that more people are competing
for jobs, and employers can then offer lower wages because people will
be willing to work for virtually anything. But that doesn't sound
particularly humane. Of course, the end-goal would be lower inflation,
which would allow people to buy more and for their dollars to stretch
farther. Perhaps the idea is that then the economy would pick up, as
people took advantage of the lower prices, and employment would go back
up.
Of course, Nixon did not follow this policy consistently, for
there were times when he favored expanding the money supply to improve
the economy, whereas Federal Reserve chairman Arthur Burns favored a
more restrictive monetary policy.
Does restricting the money
supply and increasing interest rates necessarily lead to lower
inflation? It can, as occurred during Paul Volker's tenure as Federal
Reserve chairman. But perhaps one can also argue that an expanded money
supply and lower interest rates can stimulate the economy, result in
increased production of goods, and thus enable supply to overtake
demand, thereby controlling inflation. But, then again, what if
businesses choose to take advantage of high prices to make money? Would
there be an incentive for them not to produce in such a manner that
supply would overtake demand?
Anyway, those are my non-economist economic ramblings for the day.