Inflation and the Theory of Money by Robert James Ball. Aldine Publishing Company, Chicago, 1965.

Falih Al-ShaikhIy


Ball in his book combines wage push and demand pull by making
wages and aggregate expenditures functions of the same variable,
expected profit. The expected profit (which is related to profits of the
previous period) is a function of the level and the rate of change of
unemployment. With a given level of profits of the last period, the
expected level of profits is negatively related to the current level of
unemployment and the change in unemployment. The expected level of
profits stands as an index of the expected rate of inflation, on the
assump┬Čtion that the money profits of enterprises will rise in
inflationary conditions. The expected level of profits also affects the
decisions of firms in dividing their assets between cash balances and
real-capital assets. An increase in expected profits increases aggregate
expenditures through an expansion of investment (gross investment
measured in money terms) and a reduction of business money holdings,
which raises income velocity. An increase in aggregate expenditure and
output leads to an upward movement in the expected profits function. But
this further increase in expected profit does not continue without an
upper limit, especially when all idle-money balances have been activated
or interest rate rises fast enough. Therefore, the expansion stops
unless the money supply increases. The analysis takes the supply of
nominal money as exogenously determined by the decision of the monetary
authorities; it is initially assumed to be constant.

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