The analysis of the /General Theory /shows that inflation…

““The analysis of the /General Theory /shows that inflation is a real, not a monetary, phenomenon. It operates in two stages (once more giving a crudely simple account of an intricate process). An increase in effective demand meeting an inelastic supply of goods raises prices. When food is supplied by a peasant agriculture a rise of the prices of foodstuffs is a direct increase of money income to the sellers and increases their expenditure. The higher cost of living sets up a pressure to raise wage rates. So money incomes rise all round, prices are bid up all the higher and a vicious spiral sets in. The first stage — a rise of effective demand — can very easily be prevented by not having any development. But if there is to be development there must be a stage when investment increases relatively to consumption. There must be an increase in effective demand and a tendency towards inflation. The problem is how to keep it within bounds. Some schemes of investment that seem to be clearly indispensable to improvements in the long run, such as electrical installations, take a long time to yield any fruit and meanwhile the workers engaged on these have to be supplied. The secret of non-inflationary development is to allocate the right amount of quick-yielding, capital-saving investment to the consumption-good sector (especially agriculture) to generate a sufficient surplus to support the necessary large schemes. It is in this kind of analysis, rather than in the mystifications of “deficit finance,” that the clue to inflation is to be found. [pp. 110-11]””

— Joan Robinson