Abstract

Inflation and Economic Growth

The author discusses the question, “Does inflation promote or inhibit economic growth?”. If we follow prevailing growth theory, the answer is: “Moderate inflation promotes economic growth”. The economic arguments in favour of this thesis do, indeed, seem more convincing than the counter-arguments. But if allowances are made for the possibility of self-acceleration of even a slight inflation and its social intolerability - both these aspects are neglected ın the growth models presented hitherto - the answer to the initial question will prove to be more differentiated: The arguments for the thesis that slight inflation results in higher profit rates and stimulates investment relate primarily to the short run; over longer terms, ı.e. allowing for an adaption phase, they are not convincang. The judgment on the thesis that moderate inflation is not necessarıly unsocial depends on whether the wealth losses of socially weaker strata are greater or smaller than their income gains; regrettably we know almost nothing about the probable income gains. The author feels that the thesis that a slight inflation does not inevitably get out of control is not sufficiently well established. He considers relative price stability and reasonable economic growth to be fundamentally reconcilable; in his opinion there is no economic law that controverts this. He therefore pleads for uncompromising pursuance of the objective of relative price stability so that wage and price demands which go beyond the measure set by joint agreement are linked with the risk of unemplovment and a decline in sales.