There’s a lot of talk about inflation and its causes. Is it corporate greed? Supply chain issues? One clear base cause of inflation less talked about is having an inflationary currency supply. Any other inflation caused by supply chain issues, corporate greed, lack of market competition, etc is just added on top of that. Fiat inflationary currency is a rather new invention in terms of the human timeline. In the US, Nixon is the start of it. Central banks aim for 2-3% inflation in “good years”. The money supply expands, the portion of that supply a single dollar represents, and therefore its value, decreases. This isn’t a conspiracy, it’s government policy, and both parties gleefully support it because it benefits their rich donors.
Think of it: in the last 50 years, everything has gotten cheaper to produce thanks to increasing mechanization, outsourcing to cheap labor/low regulation countries, and extremely efficient supply chains. Yet so many things “cost more” than they did 50 years ago. Even basics like bread. What used to be 5c in the US in the 50s now costs $5.00. How is that the case? Shouldn’t it cost less? Where is that “extra efficiency” going if not to lower prices? The answer: bread is the same value it’s always been, the money has gotten less valuable. This is how they keep working class people running on a treadmill, never able to achieve economic mobility.
Inflationary currency devalues the currency you worked hard to earn by increasing the supply. It hits the middle class the worst because they have more of their net wealth in cash, often in the form of emergency funds, savings, and putting together enough money for a down payment on a home. Rich people have their money in assets which aren’t harmed by currency inflation. Actually, even worse, it inflates the value of those assets! If the dollar loses value (all other things being equal), it takes more dollar to buy a share in Amazon, just like it takes more dollars to buy a loaf of bread. Poor people live hand to mouth, so their net wealth is not impacted much, but inflationary currency prevents them from saving and “moving up”. If you want to identify the causes of increasing wealth disparity, the inability of people to save money and theft of value from the middle class via money supply expansion is a major one.
Very well said. Thanks for posting.
I am not an economist but isn’t inflation stimulated in capitalist countries, and it is used as a leverage against people over saving. The idea is that your savings will lose its purchasing power over time and people are stimulated to spend them instead of simply saving it in the bank. Here we are talking of annual inflation around 2-3%.
But yes, I agree, employees are usually suffering from the inflation, as it slowly eats their purchasing power and savings.
But now the divide between poor and rich is so big, that I think our societies will reach a point where there would be public outcry and people will publicly revolt against it.
Not everyone’s savings. Only the poor’s. Rich people don’t hold currency ; they have their entire wealth in stocks, gold and real estate
Rich people are affected by inflation. If your return on investment is 4%, but inflation rose 8%, you lost money.
The detachment of productivity gains from average wages is a much stronger argument. They more or less matched up through the 70s, but then a stark difference settled in as the extra money made from things went to the investor class rather than the working class.
If I bought one unit of Apple stock, if the USD loses value, it doesn’t effect the value of my apple stock. It now takes more dollars to buy an Apple share, but my Apple share is still 1/100 of Apple. Currency devaluing makes it look like I’m making money because the share price rose, but I’m not. To be fair, I’m making money but the total value has not changed. I can trade that Apple share for more dollars now, but I probably can’t trade it for more bread or other “assets”.
If the currency loses 8% of its value, one would expect the share of Apple stock to cost 8% more currency. So if my “return on investment” is 4% but the currency is worth 8% less, that means Apple’s value has changed in addition to inflation happening. My stock lost value there. Not due to inflation, but due to Apple being valued less by the market for some unknown reason.
The impact is still disproportionate. While I lost 4% in your example, a pleb holding cash lost 8%. And plebs have a greater share of their net wealth in cash.
If the currency loses 8% of its value, one would expect the share of Apple stock to cost 8% more currency. So if my “return on investment” is 4% but the currency is worth 8% less, that means Apple’s value has changed in addition to inflation happening.
If APPL goes up 8% and inflation increased 8%, then your real rate of return is zero.
a pleb holding cash lost 8%.
This is not how it works. The working class does not “hold cash”. They spend their cash, and their wage (hopefully) tracks inflation over time. It mostly does over the long run; we’re in a period of high inflation, which is why it’s on everyone’s mind, but we’re also coming off a period of remarkably low inflation since the 2008 financial crash.
Or like I said above, it hopefully tracks with productivity gains rather than inflation, which would far outpace inflation over the last 50 years.
I’ll also copy a bit from another comment I made in the thread:
The loudest anti-inflation voices over the past 40 years haven’t come from the left. They’re right-libertarians railing about “Audit the Fed”. You should ask yourself why those temporarily embarrassed billionaires don’t like inflation. It’s definitely not because they have a sudden care about the working class on this issue.
That’s wrong. If your ROI is 4% with 8% inflation, it would have been -4% if there had been no inflation. Also on average, it’s pretty much always above (don’t forget dividends)
I’m not sure how you’re putting the numbers together. You’d be right if ROI already accounted for inflation, but it generally doesn’t.
"Everybody admits that the issuing of paper money constitutes the worst form of compulsory loan, that it most of all affects the conditions of the workers, of the poorest section of the population, and that it is the chief evil engendered by financial disorder. " - Lenin
https://www.marxists.org/archive/lenin/works/1917/ichtci/10.htm
If the government isn’t able to issue more currency, isn’t the alternative that they must pay everything from tax revenue and therefore be raising taxes more often? Wouldn’t that also hit laborers harder in the current scenario, since the loans and unrealized gains in stocks are untaxed?
You’re getting taxes either way, either via inflationary supply or paying a portion of your paycheck. Those gains get taxes when they assets are sold so in theory that’s fine, but buy-borrow-die is a loophole to get around that which should be fixed.
