On April 30, the Viennese daily newspaper “Der Standard” published an article with the headline “What’s so bad about inflation?” When reading the article, one gets the feeling that Christine Lagarde, head of the ECB, dictated the text to the author. The summarized answer to the question asked in the headline is: Nothing! Madame Lagarde had already told the citizens of the euro zone who were worried about their savings that they should kindly be happy to have a job and not mourn the loss of their savings. Also a point of view: job or fortune. As if it were an either/or matter.
Standard editor Eric Frey also sees no reason for concern. After all, rising commodity prices would be offset by rising wages anyway. True, but between the river size income and the stock size financial assets must be strictly distinguished. Wages are being raised, albeit with a delay. However, no one compensates for financial assets depleted by inflation (savings, life insurance, home savings contracts, etc.). These losses are irreversible. Incidentally, with the current devaluation of money, financial assets lose around half (!) of their value within ten years.
Mr Frey claims inflation is “Poison for Politics”. It is well known that inflation is not a natural phenomenon, but is deliberately brought about. By whom? From the political-financial-industrial complex! So if inflation actually “Poison for Politics” then the rulers and the central banks acting on their call should desist from their frivolous monetary policy as soon as possible, so as not to get poisoned in the end!
The fact that not only the central banks, but also the commercial banks are working hard on the inflation of the money supply does not change the fact that it is the cause of the currency devaluation. A fractional reserve debt system makes it possible to create money out of thin air. A system error.
Of course, Frey’s contribution should not omit the reference to the mortal enemy of austerity, John Maynard Keynes. According to the author, he has one “overheated demand” identified as the cause of inflation. In fact, Keynes was obsessed with the notion of “underconsumption” that should be counteracted with debt-financed government spending as a demand substitute.
The fact is that given the amount of money, no “demand overheating“ can occur – at least not over the entire range of goods. With fixed incomes, households are forced to moderate their spending.
That “Inflation also brings advantages”, because of that “a more flexible design of prices and wages possible” would be, is a curious claim made without justification. If the amount of money remained the same – in an economy that was constantly becoming more efficient – the purchasing power per monetary unit would increase and not decrease – and that would open up greater possibilities for households. On the other hand, declining purchasing power mainly benefits the most indebted actor – the state – which devalues its liabilities at the expense of the other money users.
Of course, Frey’s essay does not forget to conjure up the gods of every money alchemist – the allegedly extremely dangerous one Deflation. The fact that mild deflation is normal in an advancing economy – without politically motivated money manipulation – is ignored (because more goods can be produced at falling prices: that was the case in the rapidly industrializing USA of the 19th century). The fact that electronic devices have become cheaper is the best proof: despite falling prices, consumers have not put off a purchase in the expectation of even cheaper or better devices.
The reference to the economic depression of the 1930s, which is obligatory on such occasions, is useless because it is a consequence of the inflation orgy der „Roaring Twenties“ was and therefore only meant a – albeit painful – correction of a previous undesirable development.
It is true that the currency depreciation also reflects expectations. If the public largely loses confidence in the value of money, it begins to decline, which can lead to hyperinflation, as was the case in Germany and Austria in the early 1920s.
The claim “There is more than one inflation rate”can only be maintained if one considers the phenomenon of inflation exclusively as Preisinflation interpreted. But that is wrong. Because inflation (lat. inflare – to inflate) basically refers to the amount of money. Price inflation is the Consequence an expansion of the money supply – a monetary phenomenon.
There is no question that material shortages and armed conflicts act as drivers of currency devaluation. However, the cause of the erosion of purchasing power that existed before the pandemic and the Ukraine war was and is the inflationary policies of governments and an uninhibited financial industry.
That distributing grants to the needy to offset inflation “costs the state a lot of money” rounds off Eric Frey’s fairytale contribution. Nothing costs the state anything, because it neither produces nor owns anything that it has not previously stolen from its inmates (as Friedrich Nietzsche astutely recognized). Costs are always and exclusively incurred by those that are decreasing every day Net taxpayers. That, however, is a fact that is difficult for established leftists like Eric Frey to grasp.
