ABSTRACT
The purpose of this introductory chapter is to outline very briefly the nature, the cause, and the possible cure of stagflation, a nasty economic disease with an equally nasty name. The main symptom of the disease is a state of the economy which is at one and the same time stagnant and inflationary, that is to say, suffering simultaneously from heavy unemployment and from a rapid rate of rise of money prices and so of the cost of living. The disease in its acute form has inflicted society only in recent years. For some quarter of a century after the Second World War (1945–1970) economic policy was generally discussed under the assumption that there was a choice between unemployment and inflation. Should we adopt expansionary budgetary and monetary policies which give people large amounts of money with which to purchase goods and services, in which case we would have high production and employment but at the risk of driving up selling prices? Or should we adopt a restrictive financial policy in order to put a downward pressure on prices, but at the risk of creating insufficient jobs to maintain full employment?
