‘Inflation’ is one of those big posh words that people like to use when they want to show off that they’re “in the know” of economics and money mechanics. You hear it on the news, tv, the internet and when you listen to other people talk about it, it never really becomes clear ‘what it is’ or ‘why it is so important’. But you won’t ask about it because you don’t want to appear like you’re “not in the know”. It’s kind of like the story of The Emperor's New Clothes, where only ‘smart people can see’ the clothes and where everyone pretends that they can see his wonderful clothes while he’s actually walking around in his undies (or naked depending on your source )… It’s just something everyone has agreed upon has ‘great importance’ but no-one really knows the “how’s” and “what’s” and no-one questions it.So is inflation really this ‘big’ and ‘complicated’ concept that only our economists are in the know about? Not really. I mean, one of the first things you will learn when getting to the topic of inflation is that there is very little known about the exact causes of inflation and how good or bad it is for the economy. Most of the time, the concept will be used to suite the authors ideological standpoint and so you get a lot of conflicting answers to the same question.
So what is inflation? Inflation (because no-one really knows how it works) has been given a very simple and broad definition – so that you can’t really ‘go wrong’ with it:
“Inflation simply refers to the continuous increase of prices in an economy. So - two points are important to note: if prices go up and then remain stable for a while, we don't refer to it as inflation, as inflation only applies to a continuous increase in prices. Secondly - if the price of petrol keeps rising, but all other prices remain somewhat stable, we're also not dealing with inflation, because in the case of inflation all prices keep rising.”
This is taken from one of our previous blogs we made which was on the topic of Inflation, so if you want to read up about it you can do so here: Day 64: Inflation - Part 1 (also read the comments).
So you see, inflation is nothing scary or complicated, it’s just prices of all things going up and up over time. When the ‘issue’ of inflation is brought up, it’s not so much the rising of the prices that is an issue – but the wages that lag behind. Because what happens is that you used to be able to buy say a thousand breads with your monthly salary, and with the prices going up and your wage remaining the same – you can now suddenly only buy 800 breads. So here, you have a problem because your purchasing power has been diminished. Because obviously so long as you keep the variables on either side of your equation in proportion – you won’t have a problem and you’ll be able to buy just as much. It’s only when one variable goes up and the other one stays the same or lowers – that you get a problem in your proportions. What happens then is that people will start buying a lot and hogging things because they fear the future prices which will be higher, but then within this increase in consumption place the products in ‘higher demand’ and thus up the prices again – so it becomes a self-fulfilling prophecy to the point where you get hyperinflation.
So with putting into place a Living Income Guaranteed to ensure everyone’s Living and placing in a Minimum Wage amounting to double the LIG – yes, your prices will go up and so yes, that could be considered ‘inflation’. But remember that inflation in itself a neutral manifestation – meaning, it just is what it is as pricing going up. It doesn’t mean anything else. It only starts meaning something else when we fail to adjust ourselves where nominal wages remain the same while real wages go down. So yes, there will be inflation but it won’t be a problem from the perspective that your prices are directly linked and interconnected to your wages where at all times your Living is Guaranteed and thus your wages / living income will adjust to the prices to make sure everyone is able to live decently and vice versa where your prices will adjust to ensure that you get a decent wage. Here one must also consider that we will have Bureaus of Standards in place managing Quality Assurance and Control where there will be a move from obsolescence and disposability to quality and durability – which means that you will have to buy less.
So from that perspective – the whole “inflation” horror story will become something of the past as it simply won’t be able to affect anyone to the point where it does damage, as your wages and prices are no longer separate bodies but closely connected and intertwined. You will thus at all times, be protected.
Another point where inflation becomes a problem is when it is linked to a growing money supply without a matching growth in economic activity. So when the government for instance decides to finance its debt simply by printing money – you suddenly have an increase in your money supply which makes money ‘worth less’ (because ‘scarcity’ makes things ‘more valuable’ and so the opposite happens). Because this money came out of nowhere without originating or being connected to any form economic activity of real value such as labor and production – your system / equation gets thrown out of balance and all these money born out of ‘no value’ in turn has the effect devaluing / tainting all other money already present.
This type of situations will not be occurring within a Living Income Guaranteed as proposed by the Equal Life Foundation, as you will be able to discern for yourself from our previous blog on banking: Day 240: A Bank for the People, as banking/financing will always be directly related to actual activity, actual growth and actual value – and will thus not be able to throw the system out of balance.
Also check out Will the Living Income Guaranteed cause Inflation?, to get a new perspective on Inflation and to see and realize how inflation it its traditional use of the word has become a distraction of the actual Inflation taking place in our lives and in the economy – where inflation is an actual problem.
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