Inflation and Financial Systems

Abstract

There is an argument that financial systems can function and develop reasonably well despite high inflation, as long as rates of return are not “repressed”—that is, as long as rates are either market-determined or set by authorities aiming roughly to equilibrate supply of and demand for financial resources. In particular, “neo-liberal” analysts argue that financial rates must be permitted to exceed the inflation rate, to stimulate saving and to allocate credit to genuinely profitable uses.¹