ABSTRACT
The index of wholesale prices rose 50 percent and the consumer index rose 40 percent. This great failure in policy has come from a faulty diagnosis. The inflation has been treated as a traditional type of inflation, a general demand inflation coming from too much money chasing too few goods. Prices are determined by supply and demand. Specific price increases can arise from unplanned reductions in supply such as crop failures or an oil cut-off and these can add to the level of prices. The first appearance of administrative inflation came in the Eisenhower years. In the five years between 1954 and 1959, the wholesale price index went up 8 percent in spite of the fact that unemployment averaged more than 5 percent and in no year averaged as low as 4 percent. A reduction in the supplies of food and oil is no reason why there should be planned stagnation to increase unemployment and produce more idle machinery.
