Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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