National Income and Flow-of-Funds Analysis

By John P. Powelson | Go to book overview
Save to active project

Chapter 20
PRODUCTIVITY

At this point it is necessary to foreclose on what is perhaps the commonest error in contemporary attitudes toward inflation, although the point is well understood by economists. This is the almost inevitable temptation to regard increased production as a remedy for inflation. It is the most natural of errors; the first thoughts on the matter are wonderfully simple and forthright. If inflation is caused by output pressing generally on capacity, then one need only get more capacity and more output and thus insure that this tension no longer exists. But as just a moment's further thought will suggest, additional all-around production, even when it can be readily obtained from existing capacity, will pay out, in wages and other costs, the income by which it is bought. We have seen, moreover, that wants do not have an origin that is independent of production. They are nurtured by the same process by which production is increased. Accordingly, the effect of increased production from existing plant capacity is to increase also the purchasing power to buy that production and the desires which insure that the purchasing power will be used.*

Will an increase in the gross national product, or an increase in the productivity of factors of production, serve as an antidote to inflation? The question is not an easy one; if a one-sentence answer is demanded, it can only be that "sometimes it will and sometimes it won't." For productivity and output changes are only two among the numerous variables affecting the level of prices, and much depends on whether they are accompanied by higher wages and dividends, and on how great is the marginal propensity to spend the consequent increments of income.

Galbraith's restatement of Say's law, which is quoted above, is correct in so far as any partial presentation of a problem can be correct. But the answer is not so simple as Galbraith would imply. Increased production, he argues, is not an answer to inflation, because it brings with it the higher money incomes with which more goods may be demanded. But the question is whether they will be demanded. If, for example, the marginal propensity to consume is less than 100%, say, 80%, then an increase in

____________________
*
J. K. Galbraith, The Affluent Society, Boston, Houghton Mifflin, 1958, p. 215.

-444-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited page

Bookmark this page
National Income and Flow-of-Funds Analysis
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen
/ 556

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?