The Social Consequences of Inflation

Abstract

Following Keynes’s analysis in The General Theory of the causes of prolonged recessions, economists (including Keynes himself in How to Pay for the War) have adapted his analysis in order to tackle the puzzle of inflation. Just as recessions were seen to result from the inability of a decentralised capitalist economy automatically to provide sufficient overall demands with which to absorb the total supplies of goods and services that would be forthcoming if the potential workforces and existing stocks of capital goods were fully employed at each point in time, so inflation was seen to be due to an excess of total demands in real terms over available supplies of goods and service when the potential workforces and existing stocks of capital goods were fully employed. The resulting ‘inflationary gap’, the tendency for planned investment expenditure to exceed full employment saving, generated tendencies for stocks of goods to be run down, queues to form, order books to lengthen and prices to rise. (The exact mixture of these ingredients depended upon the nature of the market structures of the economy concerned.)KeywordsReal TermExcess DemandOrder BookMoney IncomeGeneral Price LevelThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.