The connection of these Keynesian policies to inflation is very clear. While eventually production increases to compensate at least partially for the increased money supply (at least in theory) nevertheless two developments make the process create price rises. Firstly while an increase in the money supply can take place very rapidly an increase in production takes a longer period. During the time in which production is lagging behind the increased money supply, inflation will take place. Secondly, the increase in the money supply is always greater than the increase in production. In the 1950s 8-10 per cent increase in money supply was needed to develop 2-3 per cent increases in production. Today for reasons discussed below 20-30 per cent increases are necessary to produce increases in production of 2-3 per cent. The effects of these big increases in money pumped into the economy with only relatively small in creases in production is soaring inflation.
These inflationary characteristics of Keynesianism have always been known. For this reason the period since 1945 has seen uninterrupted inflation. But for most of the post-war period price rises could be kept under control. After a relatively short period investment increased, a major increase in production took plane and inflation waskept under control.
When the system begins to break down a decline in the rate of profit takes place. Such a fall has occurred during the past period in all capitalist economies. In Britain the rate of profit has declined from 16.5 per cent before tax in 1950 to 9.7 per cent in 1970 and in the United States the rate of profit has declined from 16.2 per cent in 1948 to 10.5 per cent in 1973(2). With low rates of profit the capitalists "go on strike' and do not invest.