01-15-2018, 09:33 PM
(01-15-2018, 12:50 AM)Galen Wrote:(01-15-2018, 12:21 AM)Kinser79 Wrote:(01-14-2018, 02:51 PM)David Horn Wrote: Currencies -- all currencies -- act as transactional lubricants and short term stores of value. Note: they are not intended to provide long term store of value, because that defeats their function as trade enablers. In fact, they need to decline in value slowly over time: fast enough to motivate trade but slowly enough to maintain discipline.
Central banks have proved that they do not have the capacity to enforce discipline economically. Since 1914 the USD has lost almost 94% of its value. A currency system that does not maintain a relatively stable store of value is essentially useless in lubiricating transactions, unless the goal is to speed up the accumulation of goods. After all if a dollar today will be worth 75 cents tomorrow I may as well buy up as many things as I can as those goods will maintain their value in the main.
This also makes capital formation, particularly for small business, much more difficult. It also make planning for long term projects just that much harder.
1. Small businesses, especially in retailing, profit from inflation as they can add new price tags.
2. A steady stream of profits is a good enough reason for one to invest. The only question is whether one pays too much for the stream of profits.
3. So long as inflation is low enough it little effects the high-turnover activities that dominate retail as in clothing and groceries.
4. Manufacturers of big-ticket items with low turnover can usually get away with higher prices as a capital cost for keeping such objects (vehicles, furniture, appliances) from becoming loss-leaders.
5. Although it is hard to see where inflation becomes high enough to become politically unpopular (probably when people cannot use a savings plan to purchase something), and interest rates start to rise, disruptive inflation indicates a dishonest government that seeks to reward debtors and punish creditors.... or to repudiate debts without admitting to doing so. Even Weimar Germany eventually solved the inflation of the mark of the old German Empire.
6. Inflation is not a problem so long as productivity and the money supply work in tandem.
The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated Communist but instead the people for whom the distinction between fact and fiction, true and false, no longer exists -- Hannah Arendt.