This paper develops alternative approaches to the principal relationships and results in the analysis of inflation and growth. Rather than derive new propositions, our purpose is primarily to present an accessible and coherent exposition of existing theories. The issue to be analyzed is how alternative rates of inflation affect realvariables, in particular, steady state per capita consumption, real balances, and real capital. To the extent that inflation represents a tax on real balances, the real effects of altering that tax depend on what we assume about the role and nature of money. Conflicting or ambiguous results derived from alternative theories are primarily the reflection of different hypotheses about the functions of money. Since derivation of such hypotheses from microeconomic foundations continues to be a field of current inquiry, any definite conclusions with respect to the real effects of inflation must await the further development and empirical validation of such theories.l Pending such progress we propose to take stock of competing theories of inflation and growth. There are essentially two approaches to the problem. One strand of the literature initiated by Tobin [12] and Johnson [4] assumes a savings function as well as a demand function for real balances and investigates the comparative statics properties of the implied steady state characteristics of the system. In these formulations real balances are alternatively treated as a consumer or a producer good. In the
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