Murray N. Rothbard, “Inflation Redux” — Summary

“Inflation Redux” is a short polemical economic essay. Its scope is the late-1980s return of U.S. price inflation after the recession-driven disinflation of the early 1980s, interpreted through Rothbard’s Austrian monetary theory. The essay moves from current price data, to theory, to Federal Reserve criticism, to a final Austrian conclusion: once monetary inflation has produced a boom, recession is not an avoidable accident but the necessary correction.

Inflation is back. Or rather, since inflation never really left, inflation is back, with a vengeance.

Rothbard’s opening thesis is that the apparent disappearance of inflation was temporary and misleading. He argues that consumer prices had been suppressed by recession and special factors such as the collapse of OPEC and the expensive dollar, but that prior monetary expansion eventually reappeared as price inflation once those conditions passed and people began spending cash balances. The essay’s first conceptual move is to distinguish Austrian monetary analysis from what Rothbard sees as the mechanical monetarism of the Chicago School. A rise in the money supply does not translate into an immediate, fixed, predictable rise in prices because money demand, expectations, and timing are matters of human choice.

Austrians do not believe in fixed leads and lags.

This rejection of mechanical timing is central to the essay. Rothbard does not deny that monetary expansion causes inflation; rather, he denies that economists can forecast the exact interval by statistical rule. Inflation depends on whether the public holds or spends money, and that conduct changes with perception, fear, confidence, and expectations.

Such decisions depend on the insight and the expectations of individuals, and there is no way by which such perceptions and choices can be charted by economists in advance.

The middle of the essay turns from theory to institutional blame. Rothbard presents the Federal Reserve as both creator and mismanager of the inflationary cycle. It first expands money during recession, when prices respond slowly, then mistakes the delayed effect for success. Later, when prices accelerate, it tries to restrain inflation gradually, thereby prolonging distortions rather than allowing adjustment. Alan Greenspan’s anti-inflation rhetoric is treated as an attempt to manage expectations, but Rothbard argues that words cannot undo the consequences of monetary expansion.

Whatever the Fed does, it unerringly makes matters worse.

Rothbard’s critique of gradualism gives the essay its practical edge. He portrays the Fed as unwilling to permit the recessionary correction required by its own prior inflationism. The result is neither stability nor a “soft landing,” but delayed pain: rising rates, rising prices, and increasingly confused commentary from economists who had recently suggested that “structural change” had made inflation unlikely. The relevance of the essay lies in this recurring pattern: experts mistake a temporary lull in price inflation for a permanent transformation, while Rothbard insists that monetary causes remain operative even when their effects are delayed.

The final section invokes Rothbard’s preferred Austrian money aggregate, M-A, against the Federal Reserve’s official measures, which he calls “statistical artifacts devoid of real meaning.” He reads the flattening and later contraction of M-A after 1987 as evidence that recessionary pressure had already been set in motion. Yet he explicitly refuses to treat this as a reason for renewed monetary expansion. His conclusion is austerely Austrian: the bust is painful because the boom was artificial, but the bust is also the only route back to economic health.

Once an inflationary boom is launched, a recession is not only inevitable but is also the only way of correcting the distortions of the boom and returning the economy to health.

The essay’s structure is therefore tightly causal: monetary expansion, delayed price response, revived inflation, rising interest rates, failed Fed gradualism, and inevitable recession. Its main thesis is not merely that inflation was returning in 1989, but that the return exposed the fallacy of both technocratic fine-tuning and mechanical forecasting. Rothbard’s core move is to combine hard-money causality with subjectivist timing: money creation drives the cycle, but expectations determine when its visible price effects emerge.