The Effects of Post-War Inflation on the Distribution of Income

There is almost general agreement that inflation is unjust. Thus it seems to be generally accepted that it has important effects on distribution. However, the nature and direction of these effects is somewhat less certain. In popular discussion, each of the various groups usually argues that its own share of the cake is being reduced while everybody else is gaining.1 It is true that, in economics, opinions are less contradictory. So we read in Samuelson’s text: ‘The two processes of inflation and deflation cause definite and characteristic changes in … the distribution of income among economic classes. … Inflation tends to favor debtors and profit receivers at the expense of creditors and fixed-income receivers.’2 On the whole, this seems to be the prevalent opinion today, and it is plausible enough. There are, however, surprisingly few serious attempts to advance beyond the limits of the intuitively plausible into the vast territory of unsolved problems.3 This rather unsatisfactory state of our knowledge can hardly be improved radically by this study. Its main purpose will be (1) to derive a group of explanatory variables from which the distributive effects of post-war inflation can be estimated; (2) to rank these variables according to their relative importance, and (3) to illustrate some general considerations by making tentative estimates for the American economy. Attention will be concentrated on the distribution of income while wealth is not considered explicitly.