ABSTRACT
This chapter discusses the problem of achieving full employment and stable prices. By the end of the 1960s the character of the inflation underwent a basic change, from a “demand-pull” inflation to one of the “cost-push” variety. One is the modern quantity theory, fathered by Milton Friedman, and the other is the explanation offered by John Maynard Keynes in The General Theory, an explanation that, inexplicably, has been seriously neglected. In The General Theory Keynes spoke of the need for a “somewhat comprehensive socialization of investment” as the means to full employment. The existence of market power on the part of both firms and trade unions is a major factor frustrating efforts to reduce cyclical unemployment by applying the standard Keynesian demand management techniques. The basic or underlying inflation rate refers to general changes in prices growing out of the interaction of demand and supply forces at the level of the firm and industry.
