The broad aim of The Great Inflation (edited by Michael D. Bordo) is to highlight how policy mistakes can create large economic costs. The discussion focuses mostly on why inflation rates surged from the 1960s until the early 1980s. It would be a pity if this volume focused on inflation attracts less attention because current policymakers’ worry about the risk of deflation. A secondary objective is to underscore a concern that central banks continue to deal with today: namely the role of aggregate demand and supply factors in driving economic activity and, by implication, inflation. Finally, even if improvements in economic analysis and data availability since the 1960s have been remarkable, policymakers and academics are still unable to fully come to terms with how the great inflation was allowed to last so long and effectively spread worldwide. One of the only areas of consensus is that high inflation can be associated with economic stagnation, giving rise to stagflation which characterizes the experience of many large advanced economies during the period of the great inflation.

The volume consists of four parts. Additional sections are also devoted to recollections, primarily by central bankers, who convey their views about how the great inflation was ended in parts of the world that would adopt a numerical inflation target (i.e., Canada, and New Zealand) and also the lessons learned. The remainder of the volume reconsiders early views about what prompted the great inflation, such as the role of supply-side factors (i.e., oil shocks), and critics who warned that central bankers were bound to let inflation run amock. The three remaining sections focus on monetary policy explanations for the great inflation, the apparent failure of central banks to understand how inflation expectations can become unanchored, the experience of key advanced economies (United Kingdom, Japan, and Germany) during the period examined, and the role of international institutions and arrangements in facilitating the transmission of inflation shocks around the world.

One is reminded to some extent of then Governor Ben Bernanke's remarks to Milton Friedman on the occasion of his 90th birthday in 2002 concerning the Fed's role in the Great Depression: “You're right, we did it. We're very sorry. But thanks to you, we won't do it again.” Then, as now, central bankers believed in low and stable inflation. However, the era of the great inflation would produce anguish among cenral bankers when inflation rates began to soar and they seemed helpless to contain it. Today, some observers are convinced that a world awash with liquidity signals an eventual return to high inflation which, if combined with continued slow economic growth, may well usher a 2000s version of stagflation. Of course, such liquidity need not automatically lead to higher future inflation nor is it the case that central banks are without the tools necessary to reign in inflation if signs emerge. However, the policy choices required of central banks may test their political support and encourage politicians to limit the autonomy of central banks. We, therefore, live in hope that “we won't do it again” when it comes to allowing high inflation rates to return, but the volume leaves the impression that all the necessary lessons may not, in fact, have been learned.

An especially valuable element of the volume is inclusion of commentary by discussants and conference participants. A wide variety of views are expressed, and disagreements about the sources and consequences of the great inflation persist. As valuable as the contributions are, there are a few areas where the volume could have been improved. For example, even if the story of the great inflation is mainly one about monetary policy, it is a shame that more space was not devoted to the failure of fiscal and monetary policies to support each other. It would also have been useful to have a separate chapter dealing with how the design of monetary union in Europe reflected the lessons learned from the great inflation. Finally, there is no independent attempt, other than from central bankers who understandably have their own particular views on the subject, to ask whether the evolution of policy regimes since the great inflation reflects the lessons learned or actually limits the prospects of renewed stagflation. Clearly, the financial sector played a big part during the great inflation. Even if the lessons of the great inflation were learned, could the scope of subsequent policy regime changes have been more ambitious?

Regardless of one's views, this volume is essential reading for academics and policymakers and its resonance for the problems that central banks and the fiscal authorities face today is very real.