Inflation in the Context of a Mixed Economy

Abstract

It is increasingly clear that inflation cannot be explained simply by reference to changes in aggregate demand. Some economists have tried to distinguish between different “types of inflation” and to conceive of variations in the price level as the consequence of a multifunctional process. Dean Edward Mason, going deeper than most, explains changes in the general price level by the interaction of the highly diverse market structures of which the modern economy is composed. This paper, building on Mason's foundation, will relate the movements of the price level (including the so-called cost-push and demand-pull types of inflation) to the general process of allocating resources in the context of an economy composed of very diverse forms of market organization.It will be assumed that the economy consists of an oligopolistic sector and a competitive sector. Each market of the oligopolistic sector is served by large firms, each with a sufficient share of the given market to permit it to exercise, both as buyer and as seller, a significant influence on price and output. Price and the terms of sale are controlled as a matter of company policy, that is, are “administered.” It follows that, since price is administered, output and hence the influx of resources into the industry are similarly controlled.