In praise of inflation

I was pondering writing a post in praise of inflation. That sounds heretical, but really, our economic problem comes down to:

  • Paper wealth (like a dollar bill) gives you a claim on real wealth (like a candy bar).
  • We let paper wealth (stocks, bonds, house prices, etc.) get so far out of hand that there’s no way that everybody can get all the real wealth they think they own.
  • The three ways out of this are to keep most people in serfdom producing real wealth for the owners of paper wealth, to let the paper wealth evaporate (which has happened to some degree) or to print and spend so much money that the paper wealth loses some of its value.

The difference between option 2 and option 3 is that option 2 causes a painful contraction (destroying real wealth, or at least keeping people idle instead of creating more wealth), while option 3 gets people working and creating real wealth.

And when you put it that way, somehow inflation doesn’t seem so bad.
In any case, as I said, I was planning to write a post praising inflation, but before I got all my thoughts together, I read a decent summary of many of the issues involved over at Guerrilla Post. So check it out.

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