355:, a key cause of economic crises is a high level of debt, and a key cause of recovery from crises is when this debt level has decreased. Other than repayment (paying down debt) and default (not paying it), a key mechanism of debt reduction is inflation – because debts are general in nominal terms, inflation reduces the real level of debt. This effect is more pronounced the higher the debt level. For example, if the
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327:, a cause of unemployment in recessions and depressions is the failure of workers to take pay cuts, to decrease real labor costs. It is observed that wages are nominally sticky downwards, even in the long term (it is difficult to reduce nominal pay rates), and thus that inflation provides useful erosion of real costs wages without requiring nominal wage cuts.
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need never default, because they can print money to pay off the debt. Chartalists note, however, that printing money without matching it with taxation (to recover money and prevent the money supply from growing) can result in inflation if pursued beyond the point of full employment, and
Chartalists
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Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
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In this context, the direct result of inflation is a transfer of wealth from creditors to debtors – the creditors receive less in real terms than they would have before, while the debtors pay less, assuming that the debts would in fact have been repaid, and not defaulted on. Formally, this is a de
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value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
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Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real
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Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but
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they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but at confidence in the equity of the existing distribution of wealth.
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as they had in 19th century economic crises, thus returning prices and employment to equilibrium. This was opposed by
Keynesian economics, which argued that a general cut in wages reduced demand, worsening the crisis, without improving employment.
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to 270%. By contrast, if the debt to GDP ratio is 20%, then one year of 10% inflation will reduce the debt level by 2%, to 18%. Thus several years of sustained high inflation significantly reduce a high level of initial debt. This is argued by
287:; for example, a nominal interest rate of 1% and an inflation rate of 4% yields a real interest rate of (approximately) −3%. As lower (real) interest rates are associated with stimulating the economy under
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movement advocated the inflationary policy of free coinage of silver. This was a contentious political issue in the 40-year period 1873–1913, consistently defeated. Later, economist
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While few, if any, economists argue that inflation is a good thing in itself, some argue for a generally higher level of inflation, either in general or in the context of
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to yield full employment, is attacked as inflationist, with critics arguing that such deficit spending inevitably leads to
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is harmless, desirable or even advantageous. Similarly, inflationist economists advocate for an inflationist policy.
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of a country is 300% and it experiences one year of 10% inflation, the debt level will be reduced by approximately
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has at times yielded nominal wage cuts, in the belief that high real labor costs were causing unemployment.
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Inflation decreases the real value of wages, in the absence of corresponding wage rises. In the theory of
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Three contemporary arguments for higher inflation, the first two from the mainstream school of
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Inflationism is not accepted within the economics community, and is often conflated with
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Near-Rational Wage and Price
Setting and the Optimal Rates of Inflation and Unemployment
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Interview with
Olivier Blanchard: IMF Explores Contours of Future Macroeconomic Policy
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farmer and a
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Inflationism is most associated with, and a charge most leveled against,
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to achieve full employment, was attacked as "crude inflationists".
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is often seen as a worse or equal danger, particularly within
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and advocated by prominent economists, the latter from the
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396:{\displaystyle 300\%\times 10\%=30\%,}
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802:Pete Smith
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826:Inflation
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