ABSTRACT
The question posed in the title of this essay is an apparently simple one, demanding a choice between two widely-held views of inflation. This apparent simplicity, however, is deceptive, and the necessity of choice invalid; for the question exploits the fact that both the word ‘inflation’ and the word ‘development’ (or ‘growth’) have multiple meanings in current discussion. In particular, both may be used to refer either to economic facts or to economic policies; and indeed the first half of the question uses the word ‘inflation’ to refer to a fact and the second half uses it to refer to a policy (or the outcome of other policies). Furthermore, inflation, defined broadly in the factual sense of an upward trend of prices, includes the possibilities of both mild and rapid, and steady and erratic, upward price movements; and each of these distinctions is connected with important differences in the economic consequences of inflation. It is therefore neither necessary nor correct to regard the two propositions of the question as exclusive alternatives; on the contrary, the two can be discussed virtually independently. In this essay, it will be maintained that a moderate degree of inflation—specifically, inflation at an annual percentage rate that can be counted on the fingers of one or at most two hands—is likely to be an inevitable concomitant of a development policy that seeks efficiently to mobilize an economy’s resources for economic growth; but that a policy of deliberately promoting development by inflationary means, though it has theoretical and practical attractions, is likely in fact to retard rather than foster economic growth.
