John Hicks Discussion — What is Bad About Inflation?

This our weekly discussion of the price level as it relates to Perry Mehrling's money view. The price level is the average price of goods in terms of money or, equivalently, the price of money in terms of goods. But what determines the price level? Why is the price level important? And how does it fit into the money view?

This week, we're discussing the final chapter of John Hicks' 1989 book A Market Theory of Money: Chapter 15 — What is Bad about Inflation?

Hicks pushes back against some of the conventional views of inflation by pointing out that they don't explain why steady, expected, inflation is bad.

"To impose a condition of non-inflation, upon an economy which has become adjusted to rising prices, would surely, from this point of view, be quite as much of an upset."

Instead, he argues that inflation, in and of itself, is a symptom of a "weakening" economy.

"[P]erhaps what is bad about inflation is principally not its effects—the losses of 'convenience and security' to which older economists gave so much attention—but the weakening of the economy, which is the cause of the evil. If that is cured, inflation, with only a little help from monetary policy, will cure itself."

How do we feel about this explanation? Is it just begging the question? The chapter is a short five pages. Let's discuss.

Our weekly standing Zoom meeting time is 12 pm Eastern Time (America/New York) every Thursday.

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