A Critical Political Economy of Inflation

An original political economy analysis that rethinks inflation as a complex, socially constructed phenomenon, challenging orthodox views and highlighting its potential benefits for growth and inequality reduction.

The book’s seven short chapters provide an original critical, political economist’s introduction to the meaning, causes and consequences of inflation. The book begins by arguing that inflation is a metaphor rather than a ‘thing’ and that inflation is a complex social construction, whose social complexity tends to become obscured by the presentation of inflation in terms of any simple number. It identifies inclusions and exclusions, measurement difficulties, and inherent imperfections in inflation indexes. It then provides a historical context to arguments about causes and consequences, emphasising how prices and price changes are influenced by both states and (more or less private) economic forces and that rather than involving a neutral ‘change of counters’, price changes have substantial and differentiated social impacts. It shows that the ‘norm’ of rising prices is a historical novelty and highlights that genuine hyperinflations are extremely rare.
The middle part of the book develops a constructive critique of existing theories. It begins by considering the quantity theory of money, arguing that the four variables of the famous Fisher equation – money, velocity of circulation, prices and transactions – should indeed be seen as variables and that doing so means that monetarist follies do not require their inversion, that inflation cannot be a monetary phenomenon or that states cannot be implicated. It then turns to the relation between unemployment and inflation and develops ideas which link inflation to the dynamics of capitalist innovation, competition and the changing global economy.
The final part of the book considers the consequences of inflation. It contests what it sees as an anti-inflationary consensus, presenting evidence that, up to levels far beyond those contemplated by central bankers, inflation is conducive to faster economic growth and that it also tends to reduce wealth and income inequality. In this context, it argues that the contemporary low-inflation regime should be understood as a profoundly political achievement and asks why this inherently political character of inflation has been so effectively submerged and the acceptance of the low inflation agenda so widely accepted.