SHOULD WE BE CONCERNED ABOUT INFLATION?
How is inflation defined, how much power does it exercise over your wealth, and is it the most important factor in your prosperity?
Inflation;
The Webster definition, refers to the simple principal of relative values, as described, and often explained by Milton Freedman, and his followers. It makes no reference to the actual value of currency, only currency’s value in comparison to goods and services.
In the Investopedia definition, and in the very first line, we see a reference to the, “purchasing power,” of that currency. On the surface, this seems to agree with the Webster definition, but on closer scrutiny we can see that currency’s relationship to what it can secure is only a part of the full equation.
For instance, if you are able to earn, and save an amount of currency in order to purchase a particular item, let’s say, a car. If the amount of currency that you’ve saved is equal to, or greater than the value of the car, and you believe the values to be equitable, you might be inclined to purchase it. The relative value is of less importance than your inclination, and ability to purchase.
On the other hand, if someone has stolen all, or part of the currency that you’ve saved, you will not be able to make that purchase, regardless of the relative value of your currency, to the goods.
We are trained by economists, including Freedman, to focus on the relationship of the amount of currency in existence, to the amount of goods, and services available. I contend that this is, though partially true, it ignores the more important consideration, ie, the intrinsic value of your currency. It vails the fact that every time the quantity of currency is increased, it devalues each, and every unit of currency in circulation, essentially extracting the value right out of the medium of exchange . It is similar to a shell game, the relative exchange rate keeps our attention engaged while the purchasing power is removed from that which we have earned.
Have you ever wondered how it might even be possible, not to have inflation while so much money is being created, out of thin air?
Let us consider that before the Federal Reserve began, when only gold and silver were constitutionally deemed, “money,” one ounce of gold equaled $20 in US currency. As of this writing, one ounce of gold, “is worth,” $1,784.50, US currency.
This means that a 1917 dollar was worth 89.225 times more than a US dollar is right now. That’s pretty significant.
Many believe that it is the value of gold that fluctuates, but gold has intrinsic value, or worth. It is the value of currency that fluctuates in relationship to the value of gold. That is why the framers of our US Constitution stipulated that only gold and silver were to be used as a medium of exchange. These were not ignorant, and unlearned men, (as is often implied,) but wise men that sought to protect later generations from the exploitation of masterminds.
The term inflation is a product of the science of economics, and it is the science of economics that confuses the fact of intentional theft of wealth by the Federal Reserve.
While I do not believe that Adam Smith and Milton Freedman intended to facilitate the theft of wealth, I wonder if their education, and their pursuit of knowledge may have clouded their wisdom. They may have been unable to, “see the forest for the trees.”
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Inflation;
2. ( pertains to its use regarding economics.) A continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.
[Merriam-Webster]
What Is Inflation?
Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.
Inflation can be contrasted with deflation, which occurs when the purchasing power of money increases and prices decline.
[Investopedia]
KEY TAKEAWAYS
Inflation is the rate at which the the value of a currency is falling and consequently the general level of prices for goods and services is rising.
Inflation is sometimes classified into three types: Demand-Pull inflation, Cost-Push inflation, and Built-In inflation.
Most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).
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Today, Scottish thinker Adam Smith is widely credited for creating the field of economics. However, he was inspired by French writers who shared his hatred of mercantilism. In fact, the first methodical study of how economies work was undertaken by these French physiocrats. Smith took many of their ideas and expanded them into a thesis about how economies should work, as opposed to how they do work.
Smith believed that competition was self-regulating and governments should take no part in business through tariffs, taxes, or other means unless it was to protect free market competition. Many economic theories today are, at least in part, a reaction to Smith's pivotal work in the field, namely his 1776 masterpiece The Wealth of Nations. In this book, Smith laid out several of the mechanisms of capitalist production, free markets, and value. Smith showed that individuals acting in their own self-interest could, as if guided by an "invisible hand," create social and economic stability and prosperity for all.
https://www.investopedia.com/articles/economics/08/economic-thought.asp
Milton Friedman, (born July 31, 1912, Brooklyn, New York, U.S.—died November 16, 2006, San Francisco, California), American economist and educator, one of the leading proponents of monetarism in the second half of the 20th century. He was awarded the Nobel Prize for Economics in 1976.
Friedman’s best-known contributions are in the realm of monetary economics, where he is regarded as the founder of monetarism and as one of the successors of the “Chicago school” tradition of economics. In the 1950s macroeconomics was dominated by scholars who adhered to theories promoted by John Maynard Keynes. Keynesians believed in using government-sponsored policy to counteract the business cycle, and they held that fiscal policy was more effective than monetary policy in neutralizing, for example, the effects of a recession. Friedman opposed the Keynesian view that “money does not matter,” instead promoting the theory that changes in the money supply affect real economic activity in the short run and the price level in the long run. He stated his case in his introduction to Studies in the Quantity of Money (1956), a collection of articles that had been contributed by participants in the Money and Banking Workshop. That work was followed by an article, “The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897–1958” (1963), coauthored with David Meiselman, in which the stability and importance of the Keynesian multiplier was questioned. The multiplier, forming a link between changes in autonomous expenditure and subsequent changes in national income, is a key element in the Keynesian case for effective and predictable fiscal policy.
https://www.britannica.com/biography/Milton-Friedman
God bless you, Dave