Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Ten Reasons to Condemn Inflation

Economics / Inflation Sep 08, 2014 - 07:08 PM GMT

By: MISES

Economics

Andreas Marquart writes: Inflation, defined as an expansion of the supply of unbacked money, is an elementary evil, always and everywhere that it occurs.[1] It is the ignored and core cause of numerous problems in the economy and in society, including:


1. Inflation Causes Booms and Busts

Increasing the money supply that involves the granting of more credit means that new money is created by credit that is not covered by savings. This causes interest rates to fall more than would be the case without an expansion of the money supply. The result is an artificial economic boom, which politicians and the general public initially welcome. Investments are triggered that would not have been carried out if the invested capital had to be saved up first, prior to such investments. Therefore, there are insufficient resources available to bring all the projects thus begun to completion. In addition, resources — which are by their very nature scarce — are not brought to bear where they are most needed — in the most urgent projects. When interest rates climb again, the malinvestment comes to light, and a crisis — a bust — results. To overcome the bust, the central bank then reduces the interest rate again. A crisis that would clean things up is thus not allowed to happen, because it is politically undesirable.

2. Inflation Redistributes Wealth and Purchasing Power

An un-backed expansion of the money supply causes the prices of goods and services to rise. The parties who first receive the newly created money profit. They are able to make purchases at goods prices that still have not risen, whereas the later recipients of the money will only enjoy the benefits of the new money when the goods prices have already risen. They are put at a disadvantage and lose relative to the initial recipients of the cash. In addition, some market participants don’t gain anything from the newly created money. The initial recipients are the banks, the state, and large enterprises. This effect also occurs when the price of goods remains stable due to money expansion and would otherwise have fallen without an expansion of the money supply. In this instance, inflation is particularly nefarious.

3. Inflation Prevents the Price of Goods From Falling

Higher productivity and a strengthened division of labor in a national economy allow the quantity of produced goods and services to rise. If the money supply were to remain unchanged, or would rise or to a lesser extent than the quantity of goods, this would led to a falling overall price level. Expanding the money supply prevents such price decreases. The European Central Bank (ECB) has defined a reference value by which the most broadly defined money supply, M3, should ideally rise. This reference value is at present about 4.5 percent per year. The argument that is used is to always maintain price stability. Deflation, which is incorrectly interpreted as a sinking price of goods, is said to be broadly damaging to the economy. Broad swaths of the population are thus prevented from taking part in a just share of productivity increases and a strengthened (international) division of labor.

4. Inflation Causes the Welfare State to Grow

The expansion of the money allows the state to go into debt more easily and at lower interest rates than would be the case without monetary expansion. Due to that, expenditures can be financed that otherwise have to be financed by raising taxes. Politicians make use of this, particularly before elections. They thus can promise “benefits” that otherwise would not be able to be financed. People willingly take the bait and want to be the first in line, not knowing, or repressing the fact that they themselves are the ones financing the “big banquet.”

5. Inflation Destroys Families

No one has formulated this better than the economist and philosopher Hans-Hermann Hoppe in Democracy: The God That Failed, writing:

Every form of government welfare — the compulsory wealth or income transfer from “haves” to “have-nots” — lowers the value of a person’s membership in an extended family-household system as a social system of mutual cooperation and help and assistance. Marriage loses value. For parents, the value and importance of a “good” upbringing (education) of their own children is reduced. Correspondingly, for children, less value will be attached and less respect paid to their own parents.

6. Inflation Corrupts People

Placed before the choice of allowing a crisis that would clean things up after a boom and kicking the can down the road, the majority of the populace accepts the latter option. The debt of most market participants is too high to shoulder the burdens of a deflationary crisis. The fear of the loss of one’s job is just too much. Many people are also too dependent on state money transfers, state subsidies, and/or state projects.

7. Inflation Expands the State Bureaucracy

Every recession that comes after a boom makes bad investments evident. The citizens demand that the state “make things right.” The state is called on to intervene and fix things. Politicians gladly take up this call and can justify their positions in that way. But every intervention results in further state intervention and creates a veritable “thicket” of interventions. In the end, state regulations penetrate and strangle the economy and society in the form of a multiplicity of laws and regulations.

8. Inflation Makes People Materialistic, Envious, and Egotistical

Inflation reduces the purchasing power of incomes and of assets that are saved up. Thus, for example, when people invest their assets, a lot of time has to be used to compensate for the loss caused by the expansion of the money supply. This only happens with great time and effort, but mostly doesn’t. Purchasing power falls through people’s fingers like sand. Everyone literally chases every cent, envies their neighbor and his possessions, not knowing that the neighbor himself is up to his neck in debt. Charity and the willingness to help out falls among people, who are themselves just barely making it. Meanwhile, the sentiment “we already pay enough in taxes, so the state should do the charity work,” becomes more common.

9. Inflation Depresses People

Particularly for those who don’t earn much, inflation makes it increasingly hard or even impossible to accrue assets by saving. Prices, for example for energy and groceries, climb continually. Climbing the social ladder becomes harder and harder. Purchases become, for many, only possible by taking on credit. And paying off the credit becomes more and more of a burden. People are frustrated by their often hopeless situation. Frequently, this path leads to heavy debt and bankruptcy.

10. Inflation Leads to Waste and (Natural) Resources Becoming More Expensive

Resources and time are scarce. The artificial boom caused by inflation leads to investments that otherwise would not occur, or would occur at a later time. If projects have to be interrupted due to insufficient savings and/or rising interest rates, then scarce resources are used up, and — in many instances — can never be recovered. This means that more natural resources are used up than would be the case otherwise. The price of raw materials will tend to rise. In addition, the environment is damaged unnecessarily. Also, for inflation-induced infrastructure projects for which there is no real need, when viewed realistically, the environment is unnecessarily burdened.

Andreas Marquart is executive director of the Ludwig von Mises Institute Germany. He has been an independent financial consultant for more than 15 years and is a proponent of the Austrian School of economics. See Andreas Marquart's article archives.

You can subscribe to future articles by Andreas Marquart via this RSS feed.

© 2014 Copyright Andreas Marquart - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules