The Favorite Explanation of Inflation Is That Greedy Businessmen Persist in Putting Up Prices in order to Increase Their Profits

What, then, does this resurgent Austrian theory have to say about our problem [of stagflation]? The first thing to point out is that inflation is not ineluctably built into the economy, nor is it a prerequisite for a growing and thriving world. During most of the nineteenth century (apart from the years of the War of 1812 and the Civil War), prices were falling, and yet the economy was growing and industrializing. Falling prices put no damper whatsoever on business or economic prosperity.

Thus, falling prices are apparently the normal functioning of a growing market economy. So how is it that the very idea of steadily falling prices is so counter to our experience that it seems a totally unrealistic dream-world? Why, since World War II, have prices gone up continuously, and even swiftly, in the United States and throughout the world? Before that point, prices had gone up steeply during World War I and World War II; in between, they fell slightly despite the great boom of the 1920s, and then fell steeply during the Great Depression of the 1930s. In short, apart from wartime experiences, the idea of inflation as a peacetime norm really arrived after World War II.

The favorite explanation of inflation is that greedy businessmen persist in putting up prices in order to increase their profits. But surely the quotient of business "greed" has not suddenly taken a great leap forward since World War II. Weren't businesses equally "greedy" in the nineteenth century and up to 1941? So why was there no inflation trend then? Moreover, if businessmen are so avaricious as to jack up prices 10 percent per year, why do they stop there? Why do they wait; why don't they raise prices by 50 percent, or double or triple them immediately? What holds them back?

--Murray N. Rothbard, "Inflation and the Business Cycle: The Collapse of the Keynesian Paradigm," in For a New Liberty: The Libertarian Manifesto, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2006), 216-217.