“Incentives-Based” Stabilization Policies and the Evolution of the Macroeconomic Problem

  • Mancur Olson


Inflation is by definition a rise in the price level. We cannot say whether there is a case for what I prefer to call “incentives-based” stabilization policies, such as those proposed at this conference, without first confronting the question of why prices change. Obviously one reason that prices in general change is that aggregate demand frequently fluctuates, whether because of changes in monetary or fiscal policy or whatever, whereas the economy’s capacity to produce usually does not change appreciably in the short run. If the demand in money terms for output increases substantially when the supply of output in real terms is unchanged, there will, of course, tend to be a rise in prices — more money will be offered for the same amount of goods and a given amount of money will buy less in the way of goods than before.


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  1. 4.
    Phillip Cagan, The Hydra-Headed Monster: The Problem of Inflation in the United States (Washington, D.C.: American Enterprise Institute, 1974 ). This quotation and the following ones are from scattered sections of Cagan’s essay and leave out most of Cagan’s own explanations of the facts he states. The selective quotations do, however, provide a fair summary of those facts in Cagan’s account that bear most directly on the present argument. The italics are mine. I am thankful to Thomas Mayer for calling Cagan’s argument to my attention.Google Scholar
  2. 8.
    See John A Garraty, Unemployment in History, Colophon edition (New York: Harper & Row, 1979), p. 4.Google Scholar
  3. 9.
    Mancur Olson, The Logic of Collective Action ( Cambridge, Mass.: Harvard University Press, 1965, 1971 ).Google Scholar
  4. 12.
    See Peter Henle, “Reverse Collective Bargaining? A Look at Some Union Concessions,” Industrial and Labor Relations Review 26 (1973).Google Scholar

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© Springer Science+Business Media Dordrecht 1981

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  • Mancur Olson

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