Inflation

Inflation

Inflation

Inflation

Excerpt

I NFLATION may take various forms but all must have certain common features in order to warrant the common appellation. In all cases, inflationary pressure can be exerted only because monetary expenditure can be raised whether by an expansion of the money supply or by more active use of the money already available. A partial exception can, indeed, be envisaged: monetary expenditure may not rise but inflation will begin if production declines as a consequence, say, of an acute shortage of fuel or of raw materials; the exception is only partial because, although inflation may begin in this way, it will not be able to continue and gather cumulative force for more than a limited period unless monetary expenditure can somehow be expanded. In all cases inflation means that the nation is trying vainly to enjoy more goods and services than it has at its disposal. This is so when, with the economy fully employed, a government finances an increase in expenditure by a new creation of money: additional goods and services will then be diverted to the use of the state without there being any corresponding decline in private expenditure. For the nation as a whole, plans are inconsistent and claims on output exceed what is available if valued at constant prices. This is what is meant by a demand inflation, and it may manifest itself in various ways. If prices rise freely in an attempt to bring the monetary value of supplies into equality with expenditure, the demand inflation is said to be open . Prices may, however, be held down by official controls and excess demand will then give rise to queues and waiting-lists; the inflation is then said to be repressed . Up to a point the outcome may be similar even without any official intervention to control prices, for businessmen may well hesitate to push prices up to the full extent permitted by excess demand; in so far as prices are thus voluntarily controlled, unsatisfied demand will again show itself in lengthy order-books and the like.

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