ABSTRACT
Inflation is most conveniently (and neutrally) defined as a sustained rising trend in the general price level, or – what is virtually the same thing – a rate of expansion of money income greater than the rate of growth of real output. Other definitions abound but they typically attempt to insert into the definition of the observed phenomenon either some elements of a theory of causation (e.g. ‘inflation results from excess demand’) or an implicit policy recommendation (e.g. ‘inflation results from excess money creation’ or ‘inflation occurs when money wages rise faster than labour productivity’). Some are essentially meaningless, like the famous Economist catch-phrase of the immediate post-Second World War period, ‘too much money chasing too few goods’, still others involve the economic fallacy of assigning ‘real’ or ‘micro-economic’ causes to a ‘monetary’ or ‘macro-economic’ phenomenon, notably the popular views that inflation is caused by the monopoly power of trade unions on the one hand or large oligopolistic companies on the other – the point being that efficient exploitation of monopoly power involves fixing the most profitable price for the labour or product in question relative to the wages of other labour or prices of other products, the money wage or price required for this purpose being geared to the general levels of wages and prices.
