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