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The Politics of Inflation*

Published online by Cambridge University Press:  28 March 2014

Michael Parkin
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Extract

‘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.

Type
Articles
Information
Government and Opposition , Volume 10 , Issue 2 , 01 April 1975 , pp. 189 - 202
Copyright
Copyright © Government and Opposition Ltd 1975

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Footnotes

*

This paper, which was first presented at a seminar in the Department of Government at the University of Manchester, is pan of an SSRC financed research programme, ‘Inflation: Its Causes, Consequences and Cures’. I am grateful to my colleagues in the Manchester Inflation Workshop and in the Department of Government for stimulating discussions on this subject, and especially to George Zis for his comments on an earlier draft and Robert Ward for research assistance.

References

1 Friedman, Milton, ‘What Price Guideposts?’ in Schultz, George P. and Aliber, Robert Z. (eds), Guidelines, Informal Controls and the Market Place, the University of Chicago Press, 1966, p. 18.Google Scholar

2 Aubrey Jones, The New Inflation, Penguin Books, 1973 (outside back cover).

3 For a fuller and slightly more technical evaluation see Parkin, Michael, ‘United Kingdom Inflation: The Policy Alternatives’, National Westminster Bank Quarterly Review, 05, 1974, pp. 32–47.Google Scholar

4 The sources for these data are International Financial Statistics, published monthly by the IMF and Main Economic Indicators, published monthly by the OECD

5 The Labour government did not stimulate demand in the UK. before the election largely because to have done so in the face of contractionary policies in the United States would have meant further devaluation. Trapped between two unpopular moves the government chose to allow the recession to develop. They also lost the election!

6 See in particular Parkin, Michael and Stunner, Michael (eds), Incomes Policy and Inflation, Manchester University Press, 1972 Google Scholar and Ullman, Lloyd and Flanagan, Robert J., Wage Restraint; A Study of Incomes Policy in Western Europe, University of Los Angeles Press, 1971.Google Scholar

7 Bagehot, W., Lombard Street: Description of the Money Market, 1873, reprinted Lombard Street Library, London, 1915.Google Scholar

8 Much of Giblin’s work was presented in pamphlets and newspapers. However, for a more accessible secondary source on this point see Parkin, Michael, ‘Inflation: the Policy Options’, Giblin Memorial Lecture to the 1973 ANZAAS Congress, Perth, Australia, published in Search, 4 (10), 10 1973, pp. 418–425 Google Scholar

9 As this paper was being proof read, the President of the United States has announced a tax cut and a public sector incomes growth slow down for 1975, saying that, ‘The emphasis of our economic policy must now shift from inflation to jobs.’State of the Union Message, 15 January 1975.