Distributional Conflict and Inflation: Theoretical and Historical Perspectives.

Author:Niggle, Christopher J.

Distributional Conflict and Inflation presents an exploration of the conflict approach to explaining price inflation. "According to this approach, upward pressures on the price level result from an excess of income claims over the real income available to satisfy those claims. Insofar as these pressures are accommodated by increases in the money supply and/or in the velocity of money, one may speak of a conflict inflation process" [p. 1].

Many economists have argued that the ultimate cause of inflation is the distributional struggles inherent in class-differentiated market economies: Joan Robinson, Michael Kalecki, Nicholas Kaldor, and James Tobin are among those cited by the authors as taking this approach. Burdekin and Burkett attempt to refine and develop the conflict approach to price inflation (CAP) into an analytically useful way of interpreting inflation in various historical and institutional contexts.

Their contribution goes beyond previous work in several important respects: first, whereas most previous CAP analysis has focussed on the distributional struggles between capital and labor and upon wage-push inflation, they extend and generalize the approach: labor, domestic capital, foreign capital, the state, the unemployed, and pensioners are all seen as potential claimants on real output. If the sum of their ex ante claims exceeds ex post real output, the conflicting claims may result in rising prices. Some of these social classes, institutions, and social groups may be passive participants in the process, attempting to maintain their situation; others may be active participants, attempting to increase their share of real output. And claims by one group (e.g., labor or capital) may influence the claims of other groups, as in the wage-price spiral. Some groups or social classes may use their influence over the state to increase its expenditures or reduce its taxation, leading to further conflict over real income; for example, such political demands may lead to larger state consumption and excessive deficits.

Second, they attempt to formalize the CAP, specifying equations and testing hypotheses central to the approach. This model building includes (1) specifying monetary authority reaction functions to variables such as government deficits, wage and price inflation, trade balances, and exchange rates, and then estimating the parameters of those reaction functions for various countries (to what degree does the monetary base respond...

To continue reading