Over the last century many countries throughout the world have experienced.
inflation as their major economic problem. Expensive wars have traditionally been.
recognized as the sources of inflation. Governments, in effort to squeeze more production.
out of an economy, have often resorted to printing or releasing more money to finance the.
purchase of arms and soldiers1. In an economy already producing at full capacity, the.
issuing of additional money serves to bid up the prices of the output of the economy,.
resulting in inflation. It was generally assumed from past experience, that once the.
economy returned to its normal state, the persistent tendency for overall prices to rise.
would disappear, bringing inflation rates back to normal. World War II brought the.
persistent inflation that economists came to expect. In the 50's and early 60's inflation.
resumed to very low rates concomitant with large growth increases and low.
unemployment. But, from 1967 to 1974 the rates of inflation reached alarming proportions.
in many countries, such as Japan and Britain, for no apparent reason. This acceleration in.
inflation has forced many economists to reevaluate their views, and often align themselves.
with a specific school of thought regarding the causes and cures for inflation. .
There are two opposite theories regarding inflation. Monetarism indicates that.
inflation is due to increases in the supply of money. The classic example of this.
relationship is the inflation that followed an inflow of gold and silver into Europe, resulting.
from the Spanish conquest of the Americas. According to monetarists, the only way to.
cure inflation is by government action to reduce growth of the money supply. .
At the other end is the cost-push theory. Cost-pushers believe that the source of.
inflation is the rate of wage increases. They believe that wage increases are independent of.
all economic factors, and generally are determined by workers and trade unions.