John Kenneth Galbraith was born on October 1908. He was a very successful economist and wrote many articles along with quite a many best seller books. He was born in Canada and thus is known as a Canadian American Economist. By nature he was a Keynesian that is he aimed for a stronger public sector rather than a private sector…
For that purpose he gave an idea in his book "the Affluent Society". This book became a best seller as it highlighted the back draws of lesser public goods such as highways and education.
In this book Galbraith highlighted an important term 'Conventional Wisdom'. This is cited in the 2nd chapter of the book. Conventional wisdom means something that is accepted generally by the public. Conventional wisdom is said to be what the public generally believes will prop development and in economic theory these are well defined in the new growth theory that is somewhat like keeping budget deficits small, keeping a easy to collect tax base, keeping inflation low and spending more on public goods rather than private goods. Inflation has a high impact on almost every sector of the economy. Its awareness is considered very important when it comes to general public and the system should be educated enough to deal with this threat. However inflation is regarded as the best tool for expansion ONLY if it is CONTROLLED.
Inflation is the general increase in the price level. It can also be defined as a persistent or continuous rise in the general price level or in other words it can be presumed as an unrelenting or gradual fall in the value of money. Inflation refers to the change in the general level of prices. It does not refer to changes in one commodity price relative to other commodity prices. These differences are common when the overall system is balanced even. For the term inflation, the rise in the price level must be significant and continue over a period longer than a day, week, or month.
According Galbraith inflation was presented by the increase in public demand for goods. This meant that the aggregate demand came nearer to what actually the economy can sustain to produce. This conversely gave rise to prices and therefore the private sector in the World War II phase grew stronger as to meet their demands people paid more.
Inflationary effects upon the Economic growth are considered as difficult challenges. As the tools present to deal with inflation need other trade offs which an economy does not want. Such as to reduce the price level the economy must try to reduce costs and in doing so it may lose quality production. Some products are meant to be expensive and reducing their prices will cause the suppliers to lose out.
Inflation tends to widen the gap between the rich and the poor as the rich becomes richer and the poor pays the penalty. During the time of high inflation the main priority of the state becomes to provide the poor with proper food shelter and clothing at a reasonable cost.
Another shortcoming of the (uncontrolled) inflation is that the industries start loosing out to the outside competitors thereby creating job cuts which further bring down the GDP level of the economy.
The US and Inflation
The US economy suffered the same disease that the price level soared and people were unable to cope with it. What can be an effective tool to stop this disparity is the introduction of a strong Fiscal Policy as at the time of World War II US was suffering from deficits and the actual level was lower than the budgeted or predicted.
At this time I believe that the Keynesian approach is the strongest as the monetarists can only be able to control price thereby creating more trouble for the ...
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