Internal Factors Causing and Propagating Inflation: I

Abstract

Many different factors and policies have been made responsible for inflation. Let me mention a few. Some say aggregate demand rising faster than aggregate supply ‘pulls up’ prices and wages. The rise in demand in turn may be due to a government deficit (government inflation) or to an expansion of bank credit for private investment (credit expansion) or rising demand from abroad (imported inflation) or an increase in gold production (gold inflation). Others say prices are being ‘pushed up’ by wage increases forced upon the economy by labour unions under threat of strike ; or costs may be raised by business monopolies (administered-price inflation). To these positive factors can be added negative ones — for example, the failure of over-all output to grow, or of savings to stay on their ‘normal’ level — factors for which, in turn, different causes can be found. It is not difficult to think of conditions under which one or the other of these hypotheses would be valid, or to provide actual examples of several of them from recent economic history.

The reader should realise that this is a somewhat abbreviated version of a paper read in 1959. A fuller, more up-to-date treatment will be found in my pamphlet, Inflation: Its Causes and Cures, American Enterprise Association, 2nd revised edition, Washington, 1961.