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• Associate Editors
• Editorial
• Bibliographical Essay: Economics and Ideology: Aspects of the Post-ricardian Literature
• I: Political Economy
• The Classical Model of Political Economy
• Modernization, Ideology, and Economic Freedom
• Individualism Vs. Collectivism?
• The Industrial Revolution and Literacy
• Parliamentary Enclosure and Uprooted Labor
• Smith's Critique of Monopoly
• Ricardo and the “dual Development”
• Ricardo On Money
• Inflation and Political Crisis: Germany
• Inflation and Unemployment
• Government and Inflation: the Mccracken Report
• II: Concepts of Liberty
• Liberty and Its Components
• Is the Right to Freedom Vacuuous?
• Liberty, Slavery, and Utilitarianism
• Individualism, Freedom, and Society
• Liberty and Habeas Corpus
• Should Britain Have a Bill of Rights?
• Locke, Women, and Freedom
• Locke, Women, Freedom, and Individualism
• Locke, Property, and Individualism
• Children, Freedom, and Individualism
• Liberty and Mental Illness
• Sismondi and Liberty
• Mill: On Liberty
• Mill, Freedom, and Happiness
• Freedom of Speech and Moral Development
• Freedom In Kant, Hegel, and Marx
• Marx, Freedom, and Property
• Neoconservatives, Liberty, and Equality
• Freedom: the Politics of Justice and Existence
• Liberty and the American Revolution
• American Libertarians
• III: Economics and Public Policy
• How Economics Influences Political Theory
• Why Democracies Choose Deficits
• Inflation and the Welfare State
• Monetarism and the Depression
• Asian Monetary History: Gold & Silver
• Specie Money Vs. Antibullionists
• Inflation Effects On Capital
• Consumption of Public Health Services
• Factory Regulation and Vested Interests
• Poverty Programs and Government
• The Costs of Regulating Market Information
• Rent Regulation
• Engels On Economics
• IV: Social Analysis
• The Depoliticization of Society
• Is Philosophy Politically Subversive?
• Plato's Republic As a Political Dystopia
• Cicero and Modern Political Philosophy
• The Roman Jurist Gaius and Social Thought
• The Myth of Social Hierarchy
• Contract and Political Thought
• Private Vs. Public: the Domain of Freedom
• Montaigne and the Value of Tolerance
• Commerce, Utility, Character, and Republicanism
• Quintin Skinner and Western Political Thought
• Public Choice
• Editorial Board
• Contents of Vol. 33 No. 2
• Contents of Vol. 33 No. 3

Inflation and Unemployment

Melville J. Ulmer

• University of Maryland, College Park

“Old and New Fashions in Employment and Inflation Theory.” Journal of Economic Issues 13 (March 1979): 1–18.

Keynesian economics has proved unable to deal with the increasing rates of inflation prevalent in the U.S. economy. An approach emphasizing microeconomics is needed if the problem of stagflation is to be controlled.

A common occurrence in the history of science is that a widely accepted theory proves unable to cope with new facts. Instead of revising the theory, proponents of the dominant paradigm often deny that essential changes are needed, refusing to confront the challenge which the new data provide. Keynesian economics fits this pattern. Designed to handle the issues of the 1930s depression, it stressed aggregate spending and largely ignored problems of inflation. When inflation was discussed, Keynesian economists dealt with it only in terms of too much spending rather than with particular prices that were too high.

A major problem Keynesian theory is unable to explain concerns the simultaneous existence of inflation and unemployment, popularly termed stagflation. This is not in its origins a recent development and was in fact present in the 1930s and 1940s. Keynesianism finds this difficult to understand, since according to its view, increased spending should generate employment.

One modified Keynesian discussion of these problems has appeared in a recent book by Edmond Malinvaud. He attempts a mathematical derivation of the Keynesian theorems, but his works in large part

reduce to tautologies that ignore the important policy issues. Sidney Weintraub, the author of another recent discussion, is at least aware of the central issues of today. He points out correctly that Keynesian theory assumes that the consumers can anticipate all the effects of inflation, surely a dubious proposition. Weintraub's analysis emphasizes wage rates as a cause of inflation, but like Keynesian theory, it overemphasizes macroeconomics.

A better way to combat inflation is to cut out the waste in government programs. Since most unemployed workers are unskilled, we should emphasize programs to provide specifically for this type of worker. Price and wage controls should be applied to industries that are the source of the trouble, not to the entire economy indiscriminately.