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The Triumph of Form Over Content When you have a hammer, everything looks like a nail.

You Are Here: Home -> Glossary -> Inflation

Inflation

Inflation is not a thing. It is a measurement of a tendency of an abstraction that we all unthinkingly regard as a thing. Inflation, in and of itself, is neither good nor bad. It is when we reify inflation (mistakenly regarded as a thing), which is almost inevitable once we've reified money (also mistakenly regarded as a thing), that it causes such headaches.

There are several points about inflation that bear discussion:

  1. We all know what inflation measures, which is the overall decrease in the value of money or, put differently, the overall increase in the price of everything else. What is more difficult to agree on is the question of what causes inflation.

  2. There is no "inflation" in individual products. This is a classic fallacy (take heart, even the chairman of the Bank of Canada is guilty of this one): it makes no sense to speak of "inflation in gasoline" or food, or stock prices. No one can agree on what causes inflation there is no question that inflation is a general rise in the price of EVERYTHING. If the price of lumber goes up, it means you have to pay more for lumber. It doesn't mean that there is inflation in the price of lumber. Of course, this didn't stop the chairman of the Bank of Canada from using rising lumber prices to defend interest rate hikes in the early 1990s.
  3. All of this begs the question: why is inflation such a big deal? If inflation is 4% and your wages go up 4%, then you're exactly where you started out. If your wages go up 6%, then you're slightly better off. Money is a shared abstraction and inflation is a mechanism of that abstraction. Most people aren't affected by moderate levels of inflation. Only holders of long term bonds are affected, because if inflation rates go up, then they will be repaid in softened currency when they cash in their bonds. Are we going to punish a whole economy (through devastating interest rate hikes) to protect the gross capital gains of a small number of wealthy bondholders (who will still make profit in an inflationary regime, albeit less profit)?
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