West Germany's Stabilization Performance
Norbert Kloten, Karl-Heinz Ketterer, and Rainer Vollmer
Any analyst of Germany's performance in a world of inflation faces the question why the decline in the value of money in the Federal Republic of Germany was less severe than in most other countries. This question, however, is only one aspect of the inquiry into the great variation in the capacities of individual economies to maintain price stability. The wider problem requires examining those structural features of a society that may be conducive to inflation and the social processes that feed into price rises. To do this means assuming that price stability is attainable in principle in Western-type market systems, and that failure to achieve this objective is due to the maladjustment of one or more parameters of economic policy and the socioeconomic system. The question then becomes what motives--perhaps what illusions--are at work, and what obstacles preclude adjusting the parameters in accord with the objective.
The fundamental cause of inflation in a socioeconomic context is the fact that overall nominal income expectations rise higher than productive power because of the rivalries and illusions of social groups. It is significant in this connection that for individuals or groups, price stability can be considered a "collective good," which everyone benefits from whether he has made sacrifices or not.1 Everybody is in favor of price stability, but each individual would like to avoid paying for it. Where there are public goods, there are also "free riders."2 While this observation involves some____________________