The International Politics of Inflation
Robert O. Keohane
It is widely agreed that inflation, in modern economies, is more the result of governmental action than a natural disaster imposed on an unwilling species by forces beyond human control. Governments choose to let inflation persist, or accelerate, because they believe that the consequences of preventing, or stopping, it would be worse. Governments rarely go so far as the colonial American revolutionaries, who required that creditors accept paper money at par under threat of physical punishment; nor do they usually relish the process as much as the Russian revolutionary economist, Preobrazhensky, who described the printing press as "the machine-gun of the Commissariat of Finance which poured fire into the rear of the bourgeois system."1 But since the beginning of the welfare state and governmental management of their economies, they have generally preferred inflation to depression.
One way to understand governments' choices is to examine how they go about making decisions--in particular, to describe the strategies of cabinets, parties, quasi-autonomous agencies such as the Federal Reserve Board, and individual politicians, and to try to explain the coalitions that form and their outcomes. In this sort of analysis, interests and bargaining are at the center of attention. The other major way to understand choices is to focus not on the process of choosing, but on the incentives and constraints that face the choosers. Governments, like other social actors, look for opportunities in their environments, but they cannot achieve all____________________