Full text: Government Debts and Inflation: Stumbling-Blocks in the Way of Keynesian Full Employment Policy

An acceleration of the inflation, equivalent to a change 
(or attempted change) in income distribution will happen, 
if starting from the above transmission model, either the 
trade unions increase their real wage target, or the 
employers increase their profit mark-up, or the farmers ask 
and are granted higher prices for their products. It is 
evident, to my mind, from this description, that inflation 
is the expression of a political conflict about income 
distribution. This is illustrated also by the observation 
that the greater or lesser degree of chronic inflation in 
different countries plausibly depends on the existence of 
a climate of compromise or of confrontation respectively. 
This means that also a solution to inflation problems must 
largely be found on a political plane. 
It must be stressed that inflation means different things 
in different countries depending on institutions: It is 
borne more lightly in one set of institutions than in 
another (U.S.!). 
Finally, without undue cynicism, it may be noted that inflation 
provides relief to other problems, such as the public debt. 
Indeed in a situation of high interest rates when governments 
borrow on long term at very high rates the prospect of inflation 
subsiding is not one of unmitigated blessing. If a country 
is settled with a lot of such debt inflation subsiding to low 
levels will probably induce an increase in indirect taxation 
which in turn will stimulate inflation again.

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