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Inflation and electoral competition: a comparative analysis

Published online by Cambridge University Press:  26 October 2009

G. Hughes ,
M. J. Hawkins  and
J. Burton
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Extract

The purpose of this paper is to investigate the notion that liberal democracies are more prone to inflation than other types of regime. In this section we establish the context of this research by briefly rehearsing some of the main themes in the literature on the political economy of inflation. Sections II and III deal with the analytical methods employed in this paper and the results of these analyses respectively. In our Conclusion we re-examine the debate on the relationship between liberal democracy and inflation in the light of our findings.

Type
Research Article
Information
Review of International Studies , Volume 7 , Issue 4 , October 1981 , pp. 199 - 216
Copyright
Copyright © British International Studies Association 1981

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References

1. This is a revised version of a paper originally presented at the Second International Workshop on the Politics of Inflation, Unemployment and Growth, Universitat Bonn, January, 1979. The authors would like to thank the participants in the Workshop for their comments and criticisms of the earlier draft. In addition they would like to thank Mark Hagger, Alan Roff and Andy Tremayne for some constructive suggestions.

2. Irrespective of the theoretical orientation of the writers concerned, a general consensus has emerged among some economists to the effect that an increase in the secular rate of inflation will always be either directly caused, or at least accommodated, by an increase in the money supply. For an overview of the relevant literature, see Laidler, D. E. and Parkin, M., ‘Inflation: A Survey’, Economic Journal, lxxxv (1975), pp. 741–809CrossRefGoogle Scholar; Flemming, J., Inflation (London, 1976)Google Scholar.

3. See Brunner, K., ‘Comment on Gordon’, Journal of Law and Economics, xviii (1975), pp. 837—857CrossRefGoogle Scholar; Parkin, M., ‘The Politics of Inflation’, Government and Opposition, x (1975), pp. 189–202CrossRefGoogle Scholar.

4. Nordhaus, W. D., ‘The Political Business Cycle’, Review of Economic Studies, xlii (1975), pp. 169–190Google Scholar; Macrae, D., ‘A Political Model of the Business Cycle’, Journal of Political Economy, lxxxv (1977), pp. 239–263CrossRefGoogle Scholar; Frey, B. S. and Schneider, F., ‘A Politico-Economic Model of the U.K.’ Economic Journal, lxxxviii (1978), pp. 243–253CrossRefGoogle Scholar.

5. Wagner, R., ‘Economic Manipulation for Political Profit: Macro-Economic Consequences and Constitutional Implications’, Kyklos, xxx (1977), pp. 395–410CrossRefGoogle Scholar.

6. Parkin, , op. cit. p. 200Google Scholar.

7. Alexander, K. J., ‘The Politics of Inflation’, Political Quarterly, xiv (1975), pp. 300–309Google Scholar.

8. See Burton, J., ‘The Demand for Inflation in Liberal Democratic Societies’ in Whiteley, P. (ed.), Models of Political Economy (New York, 1979)Google Scholar.

9. Hirsch, F., ‘The Ideological Underlay of Inflation’, in Hirsch, F. and Goldthorpe, J. H. (eds.), The Political Economy of Inflation (London, 1978)Google Scholar. See also the essays by Crouch, Goldthorpe and Maier in the same volume, and Crouch, C., ‘The Intensification of Industrial Conflict in the UK in Crouch, C. and Pizzorno, A. (eds.), The Resurgence of Class Conflict in Europe since 1968 I, (London, 1978)Google Scholar.

10. E.g. Brittan, S., ‘The Economic Contradictions of Democracy; British Journal of Political Science, v (1975), pp. 129–159CrossRefGoogle Scholar; idem., ‘Inflation and Democracy’, in Hirsch and Goldthorpe, op. cit. Gordon, R. J., ‘The Demand for and Supply of Inflation’, Journal of Law and Economics, xviii (1975), pp. 807–836CrossRefGoogle Scholar.

11. In fact there is considerable controversy over whether centrally planned economies have been free of inflation, or whether they experience ‘repressed’ versions of it. Compare Dodge, N., ‘Inflation in the Socialist Economies’, in G. C. Means et al., The Roots of Inflation (London, 1975)Google Scholar, with Portes, and Winter, D., ‘The Demand for Money and for Consumption Goods in Centrally Planned Economies’, Review of Economics and Statistics, Ix (1978), pp. 8–18CrossRefGoogle Scholar; idem., ‘Inflation Under Central Planning’, in Hirsch and Goldthorpe, op. cit.

12. E.g. Friedman, M., ‘Nobel Lecture: Inflation and Unemployment’, Journal of Political Economy, lxxxv (1977), pp. 451–472CrossRefGoogle Scholar.

13. Brittan, S., ‘The Economic Contradictions of Democracy’Google Scholar; Jay, D., ‘How Inflation Threatens: British Democracy's Last Chance Before Extinction’, The Times, 1 July 1974Google Scholar.

14. ‘Inflation and Democracy’, op.cit. p. 164Google Scholar. This assertion is highly questionable, since it is possible to show that governments in both non-democratic and democratic regimes are motivated by the need to cull political support. See Ames, B., ‘The Politics of Public Spending in Latin America’, American Journal of Political Science, xxi (1977), pp. 149—176CrossRefGoogle Scholar; Burton, J., Hawkins, M. and Hughes, G. ‘Is Liberal Democracy Especially Prone to Inflation: An Analytical Treatment’, in Hibbs, D. Jr (ed.), Contemporary Political Economy: Studies on the Interdependence of Economics and Politics (Amsterdam, forthcoming)Google Scholar.

15. Brittan, , op.cit. pp. 165, 177–178Google Scholar.

16. For such an argument see Buchanan, J. and Wagner, R., Democracy In Deficit (New York, 1977)Google Scholar and Buchanan, J., Burton, J. and Wagner, R.The Consequences of Mr. Keynes (London, 1978)Google Scholar.

17. Examples of the latter would include Schumpeter, J., Capitalism, Socialism and Democracy (New York, 1947)Google Scholar; Dahl, R., A Preface to Democratic Theory (Chicago, 1956)Google Scholar; Pitkin, H. F., The Concept of Representation (Berkeley, 1967)Google Scholar.

18. We have excluded: (i) countries which became independent after 1965; (ii) countries for which inflation data was either non-existent or else contained large gaps; (iii) countries which experienced a regime change (from electoral to non-electoral, or vice versa) during the sample period; (iv) countries that had been the theatre of a protracted war (e.g. S. Vietnam) or were on a permanent war footing between 1965 and 1975; (v) all African countries south of the Sahara, largely for reasons enumerated under (ii) and (iii) above. Sources wereEncyclopaedia Britannica 15th ed. (Chicago, 1977); A. Banks (ed.), Political Handbook of the World (New York, 1975); J. Paxton (ed.), The Statesman's Yearbook, 1978/9 (London, 1977); InterParliamentary Union, Parliaments of the World (London, 1976).

19. Recent examples of such an approach would include Banks, A., ‘Correlates of Democratic Performance’, Comparative Politics, iv (1971), pp. 217—230Google Scholar; Dahl, R., Polyarchy: Participation and Opposition (London, 1971)Google Scholar; Frakt, P., ‘Democracy, Political Activity, Economic Development and Governmental Responsiveness: The Case of Labour Policy’, Comparative Political Studies, x (1977), pp. 177–212CrossRefGoogle Scholar.

20. E.g. Stigler, G., Five Lectures on Economic Problems (London, 1949)Google Scholar.

21. Dahl, cf., Polyarchy, op cit. p. 246Google Scholar. It should be noted that much of the data compiled in the standard sources cited in note 22 is based upon subjective assessments of the amount of party competition, or the ‘open-ness’ of elections, in a country. On this see Banks, A. and Textor, R., A Cross-Polity Survey (Cambridge. Mass., 1963), p. 7Google Scholar.

22. Banks, and Textor, , Ibid.Google Scholar; Russet, B., World Handbook of Political and Social Indicators (New Haven, 1964)Google Scholar; Banks, A., Cross-Polity Time Series Data (Cambridge, Mass., 1971)Google Scholar; Taylor, C. and Hudson, M., World Handbook of Social and Political Indicators (New Haven, 1972)Google Scholar.

23. Dahl, , Polyarchy, op cit. pp. 232–234Google Scholar. Dahl employed ten variables in order to construct a scale ranging from 1 (indicating most opportunities for an opposition to contest a government) to 31 (indicating least opportunities for contesting a government).

24. Dahl, R., Democracy in the United States, 3rd ed. (Chicago, 1976), p. 47Google Scholar.

25. Compare our ‘electoral’ category with the following classifications of polyarchies and democracies: Dahl, , Polyarchy, op cit. p. 67Google Scholar; Lindblom, C., Politics and Markets (New York, 1977), p. 132Google Scholar; Wilensky, H., The Welfare State and Ideology: Structural and Ideological Roots of Public Expenditure (Berkeley, 1975), p. 138Google Scholar.

26. We emphasize that this notion does not represent our own theoretical position on the comparative proneness of different types of regime to inflation. See Burton, Hawkins and Hughes, op. cit.

27. On this See Mundell, R.A., Monetary Theory: Inflation, Investment and Growth in the World Economy (Pacific Palisades, California, 1971)Google Scholar; Johnson, H., Inflation and the Monetarist Controversy (Amsterdam, 1972)Google Scholar. The endogeneity of the money supply under a regime of fixed exchange rates implied by such arguments may well not be an appropriate assumption in the case of the USA, however, due to the sheer size of the contribution to the world money supply, which in turn reflects the size of the US economy, and the dollar's status as an international reserve asset. See Whitman, M.V.T, ‘Global Monetarism and the Monetary Approach to the Balance of Payments’, Breakings Papers on Economic Activity, No. 3 (1975), pp. 491–536CrossRefGoogle Scholar.

28. Parkin, M., ‘Inflation, the balance of Payments, Domestic Credit Expansion and Exchange Rate adjustments’, in Aliber, R.Z. (ed.), National Monetary Policies and the International Financial System (Chicago, 1974)Google Scholar.

29. Kravis, I.B. and Lipsey, R.E., ‘Export Prices and the Transmission of Inflation’, American Economic Review, lxvii (1977), pp. 155–163Google Scholar.

30. For an exception see Lindbeck, A., ‘Stabilisation Policy in Open Economies with Endogenous Politicians’, American Economic Review, lxvi (1976), pp. 1—19Google Scholar.

31. Scheffe, H., The Analysis of Variance (New York, 1959)Google Scholar.

32. On this, see Everitt, B., Cluster Analysis (London, 1974)Google Scholar.

33. E.g. Frakt, op. cit.; Wilensky, op. cit.; Aaron, H., ‘Social Security International Comparison’ in Eckstein, O. (ed.), Studies in the Economics of Income Maintenance (Washington, D.C., 1967)Google Scholar; Collier, D. and Messick, R.E., ‘Prerequisites versus Diffusion: Testing Alternative Explanations of Social Security Adoption’, American Political Science Review, lxix (1975), pp. 1299—1315CrossRefGoogle Scholar; Prior, F.L., Public Expenditure in Communist and Capitalist Nations (Homewood, III., 1968)Google Scholar; Cutright, P., ‘Income Re-distribution: A Cross-National Analysis’, Social Forces, xivi (1967), pp. 180–190CrossRefGoogle Scholar.

34. Dahl, , Polyarchy, op. cit. pp. 26–27Google Scholar.

35. Crouch, , ‘Inflation and the Political Organisation of Economic Interests’ op. cit.Google Scholar; Jay, P., Employment, Inflation and Politics (London, 1976)Google Scholar.

36. For a discussion of a number of factors responsible for the generation of inflation that are rarely given explicit consideration in the type of literature reviewed in this paper, see Whitehead, L., ‘The Political Causes of Inflation’, Political Studies, xxvii (1979), pp. 564–575CrossRefGoogle Scholar.