The ‘New Inflation’ and Flexible Exchange Rates

  • Robert A. Mundell


In the past ten years the scourge of inflation has swept across Western and Southern Worlds and become a global epidemic. Consumer prices have risen by more than half measured in even the most stable currencies. In the past five years many commodity prices have tripled and some have quadrupled. And in the past two years alone, from 1972 to 1974, there has been an acceleration of the price indexes in all the major countries so that one speaks today of ‘two-digit’ inflation as if it were a ‘new’ phenomenon. But nothing and everything is new under the sun. There is a uniqueness to all events, and yet at the same time there is a common structure of causation in things that suggest repetition:
  • All nature is but art unknown to thee

  • All chance, direction thou canst not see

  • All discord, harmony not understood

Science looks for (and sometimes finds) the harmony in discord and the direction in chance, the general in the unique and the repetition in the new. Thus inflation is a fall in the value of money, and there is nothing new in that, in this century or any other. But inflation ebbs and flows and when it increases, as it has recently, the science of economics should be able to say why it has increased. The cause of the change may be new or old.


Monetary Policy Central Bank Money Supply European Central Bank Flexible Exchange Rate 
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Copyright information

© Banca Commerciale Italiana 1976

Authors and Affiliations

  • Robert A. Mundell

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