Abstract
Since the 1950s, Milton Friedman and other monetarist economists have sought to resurrect the old view that inflation is caused by an excessive rate of expansion of the supply of money, and to apply this doctrine to the contemporary problems of western industrialised countries. This paper examines the logical development of the monetarist analysis of inflation into its present form, which relies on a model of wage determination that has come to be known as the 'expectations-augmented Phillips curve'. The theory of wage inflation propounded by the monetarists has very important implications for economic policy,! irrespective of whether their formulation of the supply and demand for money is valid or not. But it is not well supported by institutional and empirical evidence. More realistic theories of wage determination are inconsistent with the monetarist view that inflation can readily be controlled by restricting growth of the money supply.
Published Version
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