[OPE-L:4166] Re: The Causes of Inflation (+ "extending Marx" + misc.)

Duncan K. Fole (dkf2@columbia.edu)
Fri, 7 Feb 1997 19:47:27 -0800 (PST)

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Some incomplete response to Gerry's OPE-L:3916:

>Duncan wrote in [OPE-L:3915]:
>
>> I think we have to be careful in thinking about what we mean by
>> "inflation", since the meaning of the word seems to be shifting in
>> different contexts. Each particular bundle of commodities one might use to
>> define a price index defines a different concept of inflation. I adopt the
>> point of view that "inflation" is a measure of the average rate of change
>> of all prices and wages. This diverges from some uses of the term to
>> describe a rise in the prices of commodities workers buy relative to the
>> wages they receive, that is, a fall in the real wage.
>
>Suppose [Z] contains "all prices and wages" in economy (U). Within set
>[Z], suppose that there are two sub-sets: [F] and [J]. Let [F] be composed
>of all commodities, measured in price, which are not purchased by workers
>out of wages. Let [J] be composed of all commodities, measured in price,
>which are purchased by workers out of wages.
>
>Now, suppose that there is an increase in [J], but *not* [F]. Wouldn't the
>increase in [J] cause an increase in [Z]?
>

I would say that this is a case where you have two phenomena at the same
time: an increase in average prices and wages (inflation) and a rise in the
relative price of wage-goods. Analytically it is better to work out the
consequences of each one separately, and then combine them.

Duncan

Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
(212)-854-3790
fax: (212)-854-8947
e-mail: dkf2@columbia.edu