Michael E. Levy is critical of monetarist explanations of the persistent inflation of the last decade and a half. While recognizing the important role of monetary change in the inflation process, Levy argues that monetarist explanations, such as that provided in the previous papers by Allan Meltzer, fail to take the analysis far enough. Although they identify the Federal Reserve as the ultimate source of inflation, monetarists do not give the Fed’s inflationary behavior adequate explanation. The fundamental source of the inflation of the last decade and a half, according to Levy, lies in the drastic changes in social attitudes and in economic policies that got underway in the mid-60s and persisted throughout the 1970s. This new social activism resulted in large and rapidly growing federal programs designed to transfer real after-tax income from the productive sectors to nonproducers, a dramatic increase in both the size and scope of civilian programs, increased reliance on deficit spending, and a new wave of socially oriented regulation. The dominant forces behind the persistent inflation were the following: the increased expansionary thrust of the budget; the acceleration in monetary growth in order to accommodate the deficit financing; the acceleration in wage demands as workers attempted to reverse the decline in after-tax real income associated with tax-transfer programs; the increased reliance on “inflationary” Social Security taxes; the increased business costs associated with regulation; and the slowdown in productivity and real growth resulting from disincentives, both to work and invest.