Joseph A. Schumpeter, “There is Still Time to Stop Inflation” (1948)

This is a single public economic-policy essay, first published in Nation’s Business. Its scope is the American inflation of 1948, interpreted through European inflations after World War I and then translated into a practical anti-inflation program. Schumpeter’s central thesis is that inflation becomes catastrophic not because its mechanics are obscure, but because politically powerful groups refuse the costs of stopping it.

But they were not stopped because the people who counted politically did not want to stop them.

Austria, Germany, Italy, and France serve as warnings about political stamina. France is especially important because Schumpeter argues that stabilization remained possible before delay forced a worse outcome. The American analogy is direct: debtors, firms enjoying paper profits, politicians, and voters all fear the readjustments that stabilization would bring. Inflation therefore persists as a tacit coalition against short-run pain.

So inflation runs on by common consent.

The essay’s conceptual core defines inflation monetarily while refusing a crude quantity-theory shortcut. New money matters only as it is spent, converted into incomes, and transmitted through production, credit, inventories, and wages.

We have inflation whenever means of payment increase more rapidly than the total output of goods and services.

Schumpeter divides the process into incipient, advanced, and wild inflation. In the incipient stage, new money may repay debts, strengthen cash balances, or elicit more output from underemployed industry. In advanced inflation, full employment turns government-created purchasing power into general price and income increases, while firms borrow to finance inventories and higher costs, creating secondary bank-credit inflation. Wages become decisive because they are both cost and spendable income.

For this reason and because of its importance as a cost factor, the national payroll is by far the most important conductor of inflationary effects.

Wild inflation is the terminal phase: people flee cash, borrow to buy goods or real assets, and wages and prices chase one another toward monetary collapse. Schumpeter says America is not yet there, but detects danger signals in the wage-price race and in Federal Reserve support for a vast government-debt market. Hence the policy problem is urgent but still manageable.

It is not possible to stop inflation in its tracks, without creating a depression that may be too much for our political system to withstand.

His remedies follow from the stage diagnosis. He rejects a general price rollback, direct controls as a cure, and crude reductions of the money mass by conversion or capital levy. Controls may help in particular bottlenecks, but as general policy they suppress symptoms and invite scapegoating.

Direct controls are futile, except as temporary measures in individual cases.

The positive program combines credit restriction, expenditure retrenchment, budget surpluses, and tax reform favoring saving and non-inflationary investment over consumption or bank-financed demand. Credit policy is necessary because ordinary central-bank tools have been weakened by banks’ holdings of government securities, but credit policy alone cannot solve the problem.

Credit restriction is necessary to the extent indicated but not sufficient by itself.

The essay remains relevant because it joins monetary analysis to political economy: inflation is sustained by public debt, fiscal habits, wage bargaining, expectations, and elected officials’ incentives to postpone pain. Schumpeter’s defense of capitalism is not complacent; he argues that inflation expropriates savers, distorts production, and corrodes the social groups on which the system depends.

For inflation undermines allegiance to that system, and demoralizes labor and the salaried class as does nothing else.

His final warning concerns temporary price declines. Market weakness is not proof that inflation has ended; it is an opportunity to act before pressure resumes.

But this fact lends no support to the belief that “inflation is over.”