The New Inflation

The New Inflation: The Collapse of Free Markets

W. David Slawson
Copyright Date: 1981
Pages: 440
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  • Book Info
    The New Inflation
    Book Description:

    In this lively but profound study, W. David Slawson contends that balancing the government budget will not stop current inflation short of a disastrous depression.

    Originally published in 1983.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-5695-4
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-2)
    (pp. 3-24)

    The ability of free markets to keep prices down has collapsed. This is the cause of the new inflation—not too much money or too few goods. What is more, free markets will never again be able to keep prices down. Advances in technology and changes in societal conditions have seen to this. The advances and changes cannot be reversed, and most of us would not want them to be if they could. There will therefore have to be wage and price controls if the inflation is to be stopped, although these controls should not be like those we have...

  5. PART I The New Inflation
    • [PART I Introduction]
      (pp. 25-29)

      When competition is working as in theory it should, and aggregate demand is not increasing at an excessive rate, there isnoinflation.¹ Sellers are deterred from raising prices by the fear of being undersold. Competition in this country did work substantially in this way until about fifteen years ago. Prior to 1966, except during wartime, inflation never exceeded 2 percent and was usually only half that.² During the 1930s depression, there was deflation.³ Yet, since the 1930s competition has not decreased in strength; if anything, it has become stronger.⁴ In this part I will explain how competition has changed,...

    • CHAPTER 1 The Inflationary Forms of Competition
      (pp. 30-45)

      Competition holds prices down, when it does, by threatening sellers with lowered sales if they increase their prices. It does not hold prices down, therefore, when sellers have means of increasing their prices without lowering their sales or increasing their sales without lowering their prices. In a modern economy like ours, sellers increasingly do have such means, which I will call “nonprice forms of competition.” The name will serve to distinguish these forms of competition from price competition, in which a seller engages to the extent he relies upon his prices to maintain or increase his sales. Price competition, of...

    • CHAPTER 2 Inflationary Markets
      (pp. 46-64)

      A “market” in the economic sense is not necessarily a particular place, such as the Chicago Grain Exchange, or a particular retail establishment, such as a supermarket. It is the whole set of conditions and circumstances under which goods that are in competition with one another are bought and sold. In this sense one can thus speak of “the market for steel in the United States” or “the market for pay television in Poughkeepsie.”¹ In this chapter, I shall deal with a kind of market that makes it generally profitable for sellers to charge higher and higher prices—one that...

    • CHAPTER 3 Pricing Institutions
      (pp. 65-107)

      A third development that has decreased the ability of competition to hold prices down is the emergence of what I call “pricing institutions.” A “pricing institution” is a set of laws, customs, or practices (or what I call simply “rules”) applicable to a group of sellers or buyers that enables or requires the sellers to set prices different from those they otherwise would. That is, to the extent that the conditions described in Chapters 1 and 2 do not also intervene, the prices are different from what they would be under a condition of unrestricted price competition. Most pricing institutions...

    • CHAPTER 4 Sellers’ Uncertainties
      (pp. 108-125)

      Contemporary competition also fails to hold prices down because sellers are uncertain what prices theyshouldcharge. As was explained in Chapter 1, prices are only one of the means by which sellers pursue their goals of profits, sales, market shares, prestige, economic power, or whatever else they may be seeking. A seller will therefore be uncertain about what prices he should charge to the extent that he is uncertain about the goals he is pursuing or about how he ought to pursue them. The uncertainty permits inflation by constituting another kind of “gap” within which sellers are free to...

    • CHAPTER 5 Competitive Inflation
      (pp. 126-154)

      Competitive inflation begins when people start increasing prices because other prices are, or have been, increasing. It cannot occur unless people have the power to increase prices, but we have seen that any one of the four conditions dealt with in the preceding chapters can give people this power. People usually decide to increase the prices that affect their incomes or profits when other price increases have meant that their real incomes or profits go down or, at least, go down relative to the incomes or profits of other people, creating a disparity that is not “right.” Since it is...

    • CHAPTER 6 Demand-Pull / Cost-Push / Wage-Push
      (pp. 155-178)

      There is only one truly determinate kind of inflation, that which I call “classical demand-pull inflation.” When demand throughout the entire economy (“aggregate demand”) is rising so rapidly that producers throughout the economy cannot increase the supplies of goods (“aggregate supply”) rapidly enough to keep pace, people in effect bid against one another to obtain the always scarce goods, and prices keep rising. People do not necessarily actually bid against one another, although in a very rapid demand-pull inflation this does happen. Ordinarily, sellers anticipate the rises in demand by raising prices before they put their goods on sale. The...

  6. PART II The Need for a New Economics
    • [PART II Introduction]
      (pp. 179-183)

      I have already defined what I mean by economic determinism: the belief that economic behavior is determined by the objective conditions under which it occurs.¹ Traditional economists are practically all economic determinists, whether they are aware of it or not. They have to be, or they would not be economists, as economists think of themselves. Almost all economics literature, from the elementary textbooks to the most advanced works published in professional journals, speaks in terms of the determinants of economic behavior. This literature is concerned with little else than proposing, explaining, testing, or searching for laws, theories, or “models” that...

    • CHAPTER 7 The Sources of Economic Determinism
      (pp. 184-222)

      If the determinism of our economics has prevented us from understanding indeterminate inflation, why haven’t we rejected the determinism? If not a single accurate deterministic law of economics has been discovered despite some two hundred years of trying, why haven’t we long since rejected the determinism? Our economics, it turns out, remains deterministic for essentially three reasons. It was founded this way by Adam Smith, and ideas that are basic to a discipline are very slow to change. Economic determinism has always been a part of a larger intellectual milieu in which each belief gives and gains support from the...

    • CHAPTER 8 The Costs of Economic Determinism
      (pp. 223-266)

      Economic determinism has prevented us from understanding indeterminate inflation. This is reason enough for rejecting economic determinism and rebuilding economics on a new base; and there are other reasons. Economic determinism is wrong. It is simply not true that people’s economic behavior is determined, that objective (“material”) things are the only operative factors in economic phenomena, or that economic behavior can or should be studied exclusively by studying objective (“positive”) things. None of these assumptions was ever true, and modern conditions have destroyed the bases for their being even good approximations. So until economic determinism is rejected, economics will not...

    • CHAPTER 9 The New Economics
      (pp. 267-302)

      Since economics cannot successfully be a natural science, it might be thought that the answer would be simply to transform it into a social science. The answer is not so simple, however. The social sciences have encountered the same problems in their attempts to model themselves after the natural sciences as economics has.¹ If they have not generally suffered so much, it is only because they have not generally sought so much. The right answer, I think, is that economics ought to be a social science, but not as the social sciences generally are now, but as they ought to...

  7. PART III Controlling Inflation
    • [PART III Introduction]
      (pp. 303-309)

      Controlling inflation will be a large, complex, never-ending task. It will probably require an effort on the order of that which we presently put into the collection and enforcement of the federal income tax. The federal income tax makes a good comparison for other reasons, as well. Politics will be involved. Congress, the President, and the anti-inflation program administrator will be pressured to favor one group or another. There will be fraudulent evasion and honest avoidance. Even the best rules of the program will have to be continually changed or refined as people learn how to evade or avoid them,...

    • CHAPTER 10 The Shape of the Program
      (pp. 310-349)

      The conditions that permit indeterminate inflation are inherent in a modern economy, so a program against indeterminate inflation has to be permanent. This is the salient fact about any such program, which would differentiate it from every other anti-inflation program the United States has ever had. A program to prevent indeterminate inflation also cannot be on again–off again. It has to be on all the time.

      The 1971 Economic Stabilization Program system of wage and price controls was both temporary and intermittent, and both these aspects caused harm. To the extent that those who planned the program had any...

    • CHAPTER 11 Some Specific Directions for the Program
      (pp. 350-414)

      My specific suggestions for an anti-inflation program are organized, by and large, by the kind of pricing institution that would be involved. Not surprisingly, it turns out that the kind of pricing institution that has developed in each sector is more indicative than anything else of the kind of wage and price controls that would be appropriate for it, and of whether wage and price controls would be appropriate at all. I do not suggest that some kind of wage and price controls be imposed on every part of the economy. But I consider every major part of the economy,...

  8. INDEX
    (pp. 415-424)
  9. Back Matter
    (pp. 425-425)