Saturday, July 20, 2024

Inflation is a moral disease – El Jornal

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As Ricardo Canaleti has already pointed out in these columns, it is truly an extraordinary result achieved by Javier Maile, who in Argentina managed to reduce inflation that only a year ago was at very high levels. However, this is no simple economic success, since the increase in prices resulting from money creation produces destruction from different points of view. In fact, when there is inflation, money ceases to function as a “number”. If currency helps us measure this or that good or service at the economic level, then in the case of inflation it is as if we had a measuring stick with variable dimensions; This hinders productive life in various ways. Moreover, under inflation, everyone becomes less motivated to save, as their deposits erode over time. However, a dynamic economy cannot be imagined in the absence of the necessary capital for investments. Ultimately, the accumulation of financial resources is “deferred consumption”: where one forgoes spending something today because of large expenses later, as when an employee sets aside money to start his own business. But for this to happen, the money must not be consumed by simply passing the days.

Inflation is also a form of taxation, albeit hidden and never discussed in Parliament. When the central bank doubles the money in circulation and thus my current account dwindles (nominal values ​​don’t change, but purchasing power does), all of this happens because someone is taking advantage of it. Ultimately, as Richard Cantillon explained more than two centuries ago, the first consumers of the new money had good currency at their disposal, while the latter had money that had lost its strength, because many now realized that the quantity of money had declined. more . In general, the first are the closest to power and the second are the closest to it. Moreover, inflation tends to compound social tensions. Many will remember the labor struggles in Italy in the 1970s and thus one of their causes

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It was an increase in prices. In a period characterized by inflation, no one can accept that his salary will always remain the same: hence the conflict is exacerbated. The same can be said about lease payments and other forms of contracts. Ultimately, a currency that loses its value encourages certain behaviors and disrupts social relationships. Even in Italy today, inflation rewards debtors (who will have to repay reduced capital) as much as it punishes savers, and even cicadas reproduce at the expense of ants.

However, it is not on this basis that the company can grow.

This is precisely why the economist Wilhelm Röpke spoke of inflation as a moral and spiritual disease, and why Miles is right to fight it so vigorously.

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