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2022 | OriginalPaper | Chapter

11. T. W. Swan: “The Theory of Suppressed Inflation”

Author : Peter L. Swan

Published in: Trevor Winchester Swan, Volume I

Publisher: Springer International Publishing

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Abstract

“When a further increase in the quantity of effective demand produces no further increase in output and entirely spends itself on an increase in the cost-unit fully proportionate to the increase in effective demand, we have reached a condition… of true inflation”. This is Keynes’ definition of the point at which “inflation” begins; it corresponds with his definition of the point of “full employment”.

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previous chapter T. W. Swan: “Progress Report on the Trade Cycle”
next chapter T. W. Swan: “The Anatomy of Inflation”
Appendix
Available only for authorised users
Footnotes
1
“General theory”, pp. 303 and 26.
 
2
Taking into account Eqs. (1) and (2) might be re-written; S = I − T. The equations imply that programmes included in I are always realized (or that the purpose of the calculations is to set out the conditions in which they will be realized), so that all excess demand is concentrated in the consumption market. Either \(X_{c}\) or \(X_{s}\) or could, of course, be eliminated, together with the equation containing it, since excess demand and excess savings are, in the circumstances assumed, synonymous. The extra equation and unknown have been retained as a basis for later comparisons in different circumstances.
 
3
Although many refinements and conundrums—e.g. the index number problem—must theoretically be faced in order to incorporate indirect taxes in T, for practical purposes the total of revenue raised is probably an adequate measure.
 
4
The form of the demand equations used in the “model” implies that at its maximum, set by full employment, C is either in free supply or else in short supply only when demand spilled over from both A and B is taken into account (see Appendix). It will be necessary in due course also to assume that A remains in short supply even when "deflation" has eliminated excess demand for C and B.
 
5
This is not true in the special case where u + v + w = 1. See next footnote. The formula for the elimination of excess savings in the general case, and at less than full employment (i.e. without the absurdity of excess supply) is given in (d) below.
 
6
The elimination of the “gap” in the circumstances postulated (u + v + w = 1) is, of course, consistent with full employment, since it requires merely that one commodity shall be in free supply at the point of full employment (Nor, apart from the special definition of C used in the model—all consumption other than “bottle” goods) does it necessarily make any significant contribution either to the freeing of resources for “bottleneck” production or for the reduction of demand for “bottleneck” goods.
 
7
This formula assumes that A is still in short supply when the excess demand for B is eliminated (see Appendix).
 
8
Of course, if A were further sub-divided into several rationed commodities, the demand for certain of them may have been brought down to the supply, enabling rationing to be dispensed with for these commodities.
 
9
If the elimination of \(X_{a}\) is to eliminate the “disincentive” it is implied that the rise in T is not of such a character as to act itself as a “disincentive”.
 
10
The excess demand for B having now been eliminated (and in fact from the point at which B is only short because of the spill-over of demand form A), Eq. (3) showing the demand for A reverts to the form (a) of paragraph 12 above (see Appendix).
 
Metadata
Title
T. W. Swan: “The Theory of Suppressed Inflation”
Author
Peter L. Swan
Copyright Year
2022
Book
Trevor Winchester Swan, Volume I

Print ISBN: 978-3-031-13736-5

Electronic ISBN: 978-3-031-13737-2

Copyright Year: 2022

DOI
https://doi.org/10.1007/978-3-031-13737-2_11