Does Democracy Cause Inflation? Political Ideas of Some Economists
It is not the popular movement, but the travelling of the minds of men who sit in the seat of Adam Smith that is really telling and worthy of all attention.
Since inflation has ebbed but democratic institutions have not radically changed, some economists may prefer to forget one of their major themes of the 1970s, namely, the view that inflation is the inevitable outcome of the normal functioning of democratic political institutions. But even if the economists who maintained this view are bashful, it is worth recalling their analysis and, at least retrospectively, analyzing the premises that might once again be appealed to if economic outcomes seem unfavorable. Since none of this group have themselves recanted, it seems reasonable to assume their doctrines and prescriptions still stand. These economists proposed the simple view that political authorities create or permit inflation by their control of fiscal and monetary policy. Applying the standard methodology of economics to the analysis of political phenomena, this new school of "political economists" (which is represented in this discussion principally by the work of James Buchanan and the Virginia School) went on to propose that central aspects of economic policymaking be removed from the control of elected representatives, such as governments in parliamentary systems.1____________________