For several years, Western countries—and particularly within the OECD—have discussed the conditions required for “sound expansion” or “balanced growth.” Countries such as France and Great Britain, which did not benefit from labor force growth like Germany, experienced significant inflationary pressures once their growth rates exceeded a certain threshold. For various reasons, demand increased more rapidly than aggregate supply, exerting upward pressure on prices.
Once full employment was reached, it was no longer possible to expand production in the short term. Productivity gains required time to take effect, while demand—driven by rising incomes and credit—continued to outpace productive capacity. This dynamic generated a spiral between prices and costs. The French economy experienced this process several times, as excessively rapid growth led to price increases and imbalances in external payments.
An objective observation of the period between 1950 and 1965 shows that the 1958–1959 recession was framed by two approximately symmetrical four-year periods, each composed of two years of balanced expansion (1954–1955 and 1960–1961) and two years of inflationary expansion (1956–1957 and 1962–1963). Although this division simplifies the most recent period, the overall rise in prices—4.7% and 5.6% in 1956 and 1957, compared with 4% and 5% in 1962 and 1963—remained of the same order. In September 1963, the French government implemented a Stabilization Plan aimed at curbing price increases and eliminating inflation.
Income policy
Income policy must attempt—one of its most difficult aspects—to achieve a fair balance between the demands of each group and those of society as a whole. In an interdependent economy, a firm does not only have responsibilities toward its employees and shareholders, but also toward consumers and, more broadly, toward the entire economy. It may even be considered that, in a cohesive society, the overall progress of the economy should carry more weight than the progress of individual firms.
Thus, if a sector’s productivity increases faster than the average, it may provide higher remuneration to its own factors of production, provided that it simultaneously reduces prices proportionally. Conversely, if all actors accept this framework, a firm with limited productivity growth may moderately increase its prices without generating inflationary pressure. This conception preserves incentives for productivity while reinforcing solidarity among economic activities.
The Massé Report establishes here the foundations of an economy based on solidarity, far removed from traditional market models. It requires state intervention and cooperation between trade unions, businesses, and government at an unprecedented scale.
Before implementing this policy, the government introduced a Stabilization Plan in September 1963, consisting of selective credit contraction, reduction of public expenditure, price controls, and tariff reductions on certain industrial goods to increase foreign competition. This plan achieved its objective of stability: private demand, both for investment and consumption, reached a ceiling in most sectors, while external trade showed signs of recovery alongside continued price stability and slower growth.
It is also necessary to note that deflationary policy—aimed at restricting consumption and investment—can lead to recession when inflation is not driven by excess demand. The causes of inflation are multiple and are largely rooted in structural, institutional, and behavioral factors. Only long-term action on these structures can eliminate persistent inflationary pressures.
The Stabilization Plan highlighted the need to encourage the concentration of commercial enterprises, but this alone is insufficient. Reforming distribution systems requires sustained political will, as it involves dismantling entrenched structures. Many intermediary activities would need to disappear, a measure that is difficult to implement and unpopular.
If wage increases generate inflationary tensions, only a comprehensive income policy can address them effectively. Isolated wage controls are typically perceived by trade unions as confrontational. The Rueff-Armand Report, published in 1960, identified key structural obstacles to economic expansion, including inefficiencies in distribution systems, rigid professional organizations, administrative limitations, and the influence of interest groups. However, it did not lead to significant policy changes.
To address structural inflation, policies must target its underlying causes rather than rely on traditional monetary contraction or fiscal balance. The inflation associated with full employment in the immediate postwar period may have evolved into a form of price inflation without excess demand, potentially coexisting with advanced forms of economic stagnation.