The Politics of Inflation

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Abstract
‘INFLATION IS ALWAYS AND EVERYWHERE A MONETARY PHENOMENON resulting from and accompanied by a rise in the quantity of money relative to output.’ ‘We face a new inflationary problem. Its origins are social and political, not economic or monetary.’ These two quotations summarize briefly, but well, the two most widely held yet sharply conflicting views on the causes of inflation. Which view is correct? Is it possible, perhaps, that.in a paradoxical sense both are? These are the central questions which are addressed in this paper. First an analytical framework is presented within which it is possible to pose the major relevant questions about the causes of inflation, concentrating articularly on the possible interactions between political, soci af and economic factors. That fiamework is then used to present the two most commonly advanced and yet sharply distinct views about the causes of inflation and, by implication, what would have to be done to stop it. These two views are then evaluated on the basis of the empirical evidence. This evaluation is more impressionistic and historical than econometric and technical though the two approaches do in fact tell the same story. Finally, the policy implications which follow from the analysis are examined. This policy evaluation is conducted in broad political, rather than narrowly technical, economic terms.

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