Inflation and Growth: Working More vs. Working Better

The record of recent economic expansions shows that work effort has supplanted productivity as a source of growth. Inflation may be one of the prominent causes of this trend, because it promotes errors in resource allocation and discourages capital development, eventually leading to loss of wealth in the economy. Instead of producing a faster rate of economic growth, then, higher rates of inflation reduce economic welfare by causing us to work harder rather than better.