Inflation- A real headache for nations (Contd.)

Some nonmonetary ideas are illogical. The existence of monopoly power or union power might be argued to raise prices generally relative to what they otherwise would be. But a continuing price rise year-in year-out requires a continuing increase in the degree of monopoly or union power in the economy. This is neither plausible over long periods of time, nor consistent with evidence from recent decades for the United States.
Nonmonetary theories of inflation traditionally separate "demand-pull" sources from "cost-push" factors like oil, monopoly power, or wages. A surge in the demand for goods and services in general ("aggregate demand") is thought to "pull" prices up across the board, especially when "aggregate supply" is held back by inertia or capacity limitations. Skeptics rightly question how demand could constantly outstrip supply. Surely, demand must originate from purchasing power, purchasing power from wealth, wealth from income, and income from the ability to produce (and hence supply) goods and services. This contradiction was understood early in the nineteenth century by Jean-Baptiste Say and others.
Other logical objections to the idea of demand-pull inflation center on the importance of money. How could prices rise without a commensurate increase in the quantity of money in private hands? If such a thing happened, the purchasing power of the quantity of money would have declined involuntarily, and that would not be consistent with market equilibrium. Economists of the "monetarist" school emphasize the power and discretion of government to vary the money supply, causing private markets to bring the economy's price structure into conformity.
Finally, there is strong, though surprisingly little known evidence against the demand-pull view that excessively rapid economic growth ("overheating") is an important source of inflation. Inflation has tended to increase in periods of slow growth or recession and decrease in periods of expansion. The idea that growth risks inflation is not on as strong a footing factually as the idea that inflation hurts growth.
Among those who attribute inflation to monetary causes, at least two quite different views exist. The monetarist view is that increases in the quantity of money cause inflation. Critics of this view point out that the quantity of money is difficult to define, especially when funds can be transferred electronically and credit cards can substitute for cash balances. It can also be argued that people have freedom to choose the quantity of money they want to hold rather than merely accept the quantity the government wishes to impose upon them.
The other monetary view, held historically by opponents of fiat (i.e., government) paper money, and by advocates today of restoring the gold standard, is that the quantity of money can take care of itself. What really is needed, according to this view, is a mechanism for keeping the price of the currency stable, for providing an anchor, so to speak.
Governments have been slow to accept the recommendations of either of these camps. That probably is because either a strict monetary rule or strict adherence to a gold standard or other price rule would place strict limits on discretionary government management of the economy.