Trends to increase social differences, even in fresh history, are not fresh and have their keen supporters and enemies. The period of inflation always results in concentration of capital, expanding social inequality, and never leads to an increase in egalitarianism.
Although the money of all members of society is losing value, they are concentrated primarily in the hands of classes with means of production and goods and various types of financial speculators. Social inequality deepens the trend towards redistribution of goods and services through political processes, which is manifested in the increase in taxes and contributions.
High inflation gives distorted signals of real social needs and preferences, affects incorrect economical decisions, reduce investment and reduce work efforts. According to Elżbieta Mikula, "higher inequalities besides contribute to the disproportionate impact of groups on decisions taken, thereby making the lobby of more prosperous groups contribute to preferential treatment of tax-rich groups, which in turn can influence overinvestment in certain areas, as well as lead to an increase in corruption" [and].
As inequalities increase, the availability of loans for people with lower incomes decreases and banks request additional collateral and interest rates and repayment requires additional costs. At that time, mediocre people are deprived of the chance to invest in “human capital” in their education and health. They do not have opportunities like the rich, which leads to the inheritance of the social position of mediocre parents by their children. The economically prosperous groups build their identity on circumstantial cultural patterns and a prestigious consumption model.
The consequence of excessive inequality is little political stability, greater force and crime in social life and consequently little opportunities to bring abroad investment to the country. The fight against crime requires an increase in budgetary expenditure and a shift of additional resources to guarantee public order. In countries where there are many low-income groups, the level of austerity and request for basic goods is reduced, which in turn hinders the improvement of the full national economy.
The uneven price increase is conducive to commodity speculation, as the usage of capital in the sphere of speculative trading becomes more profitable than in production. Inflation increases the imbalance between production and trade in goods, decouples the financial strategy and violates the full reproductive process. The tendency to accumulate excessive stocks of goods, natural materials and equipment is developing. Inflation gives emergence to pro-inflationary attitudes of the population, which escapes depreciated money and spends current income on various kinds of goods, not always essential to meet needs, giving false signals to producers as to the scale of needs and social preferences and is simply a origin of consumer sentiment. Inflation facilitates the restructuring of the economy in the interests of the most dynamically developing divisions of the national economy (capital). The redistributive function of inflation affects both labour-capital relations, between individual groups of capital in favour of large financial capital, and between individual groups of the working class, and between workers of the production and budget sphere, or between workers and pensioners. It is easier to corrupt the economical and state apparatus.
Ludwig von Mises on the causes of inflation
Unlike monetaryists, strong opponents of inflation, prof. Ludwig von Mises (photo), a supporter of leseferism, wrote that the concepts of inflation and deflation were put into circulation by politicians and resulted from the misconception that money in exchange could be ‘neutral’ and have a fixed purchasing power, which is simply a feature of solid money. The full period of existence of political economy is accompanied by the search for an perfect unit of monetary measure, circumstantial atoms of perfect value. Meanwhile, according to Mises, this search has failed due to the fact that the purchasing power of money is never constant and we are always dealing with inflation or deflation. The reservation of these terms (inflation, deflation) for large changes in purchasing power is inappropriate and does not alter the nature of the contradiction between inflation and deflation. The usage of these terms can only simplify historical or theoretical arguments describing a certain practice, but it cannot be forgotten that all economical claims relating to major changes are besides visible in relation to the smaller ones, although the effects of tiny changes have a lower social resonance.
Mises opposed both the monetarians who proclaimed the necessity of ruthlessly combating inflation and deflation, as well as "inflationists" and "deflationists" who sought to trigger inflation or deflation. Inflationists, coming out of Copernicus's general law that weaker money displaces stronger money, represent the view that the gradual simplification in the purchasing power of a monetary unit played a decisive function in past erstwhile the supply of money increased faster than the request for money, which was a essential condition for economical development. The progressive division of labour and the increase in capital accumulation, allowing productivity to increase, were only possible in conditions of continuous price increases. Inflation was intended to justify that it benefited debtors at the expense of creditors. The debtor hoped that the debt he took would be repaid with little valuable money. The average entrepreneur, considering the constant decline in the purchasing power of a monetary unit, associated the increase in prices with profits and the decrease in prices with losses. average inflationism, in his opinion, was the essence of John Maynard Keynes' views. At present, banks are already hedged in credit agreements by the transfer of inflation costs to collectors.
The inflationist error
According to Mises, however, the spokesperson for inflationism makes a mistake. Their fight against the inevitable effect of advanced inflation, or price increases, is not consistent. "They make it appear that their goal is to destruct the sources of evil, while in fact they only fight against its symptoms. As they do not realize the causal link between the increase in money and the increase in prices, they are causing the situation to deteriorate. The best example are subsidies that the governments of the United States, Canada and large Britain granted to farmers during planet War II" [ii]. The introduction of maximum prices led to a decrease in the supply of goods, as producers with highly advanced costs had to reduce production. Grants have increased the amount of money in circulation. However, according to Mises, “if consumers had to pay higher prices for agricultural products, the effects of inflation would not be aggravated. Consumers would spend only money on more costly products that had already been put into circulation. Thus, the inability to separate between inflation and its effects can lead to further inflation" [iii]. But did Mises, declaring himself an enemy of inflation due to the fact that he did not separate the essence from the phenomenon, objectively speaking, prove to be a supporter of average inflation?
Mises felt that no government should prosecute both inflationary and deflationary policies. It can be said that inflation and deflation would be carried out on their own, as they would have an nonsubjective course, independent of government action. Making an appearance of an impartial view of inflation and deflation, Mises so made respective conclusions: “1. The government that has conducted inflation or deflation policies does not increase the well-being of citizens, does not work for the general well-being or national interest. It simply favours 1 social group at the expense of the another groups. 2. It is impossible to foretell which group will benefit from a peculiar inflationary or deflationary solution or to find the degree of these benefits. This depends on the overall marketplace data, as well as the pace of inflation or deflation movements. Initially, the affirmative consequences of inflation or deflation as the adopted solution develops may prove to be detrimental to a peculiar group. 3. Monetary expansion always leads to mediocre capital investments and excessive consumption. As a result, the state is not rich, but poor. [...] 4. Long-term inflation must yet lead to a disaster, a complete collapse of the monetary system. 5. Deflationary policy is costly to the state and does not enjoy the popularity of the masses. Inflation policy, however, is beneficial for the state's treasury and is widely popular. The hazard of deflation is virtually negligible and the hazard of inflation is very high’ [iv]. There is simply a clear belief that a "free market" is the best solution.
If it is accepted that point 1 Mises writes the fact that the government through pro-inflation policy does not act for the benefit of the general public, in point 2 it tries to hide the fact about the effects of inflation erstwhile it writes that "it is impossible to foretell which group will benefit from a certain inflationary or deflationary solution". If that were the case, it would mean that the government does not know what it does, that the government through pro-inflation policy does not express the interests of the ruling class or of any part of it and its clientele. The government knows very well that as a consequence of inflation its negative effects will be mainly affected by working masses. The past of wars and revolutions proves that inflation can besides be directed at 1 or the another classes at the same time. Unfailing capital decisions arising from the transmission of incorrect marketplace signals besides fall primarily on working masses, which means that they may besides lose any capital groups.
Effectiveness of dialectical materialism
The unintended consequence of this message by Mises is to confirm the effectiveness of utilizing materialistic dialectics to analyse inflation and deflation. individual to whom inflation initially corresponded and benefited from it could later lose and become its enemy, and vice versa. The emergence of inflation is the consequence of the ongoing conflict between classes in the economical sphere, but besides the abolition of it requires the mobilisation of certain social forces on an economical and political level. Before that happens, there must be profound changes in consciousness. Contrary to Mises's claims, the social effects of inflation are predictable, the top benefit of it is usually obtained by large capital and speculative capital, and by far the people who sale their labour and pensioners are losing their capital. The realization of this fact is the main task of those parties who declare their relation with the interests of the majority of society, with the nation.
Mises himself wrote that according to the inflationist explanation of past inflation contributes to expanding business income, as commodity prices increase sooner and faster than working wages, and this is 1 of the most crucial moments of inflation. Physical and intellectual workers spend little on consumption due to inflation, and class representatives with a tendency to increase savings, accumulations and investments. Additional investments are the consequence of consumption restrictions imposed on the working part of society, pensioners and pensioners. However, investments make request for part of the workforce and lead to an increase in part of its real wages. Inflation, however, besides leads to an increase in capital consumption, falsification of accounting, ‘a delusion of profit or apparent profit’, depreciation write-offs do not take into account the request for more investment as depreciation is carried out in a weakened currency.
Dr Edward Karolczuk
Mises wrote: “These seeming gains make people feel that inflation leads to general prosperity. They think they're lucky, they don't regret spending money, and they enjoy life. They upgrade their homes, build fresh residences and spend money on entertainment. By allocating to the expenditure alleged profits, which in fact are simply a product of miscalculation, they consume capital. It doesn't substance who the people who spend money like that are. They may be traders or speculators of the stock exchange; workers who have received a desired increase from a carefree employer, convinced that they are becoming richer all day; people surviving on taxes, who are usually active in a crucial share of apparent profits” [v]. Inflation from its essence must take any of the incomes of the majority of the population in order for the number to become rich.
At last, however, the supporters of inflationism fail. Even faster than nominal income, goods prices are rising. Most people who sale their labour thus endure considerable losses. It does not aid to place savings on the stock market, in fixed-term deposits, or in bonds and life policies. The income from these investments is mostly lower than the rate of inflation. All, according to Mises, are discouraged from saving money and encourage wastefulness, and this ends with a “gone from money” which is “a desperate effort to save anything from this disaster” [vi]. But that is not the solution to the problem.
Also entrepreneurs who grow their production activities must increase the prices of capital goods and wages. And like in a vicious circle, as wages increase, consumer goods prices must increase. However, as Mises pointed out, there was a paradoxical situation in which price increases have led to widespread optimism. "If only the prices of production goods were to emergence and consumer goods prices were not to change, this could alarm entrepreneurs. This would rise doubts as to the reasonableness of their plans, as the increase in production costs would override their calculation. However, their vigilance is dormant, as request for consumer goods is increasing, allowing sales to increase despite rising prices. They are convinced that production will be profitable, although its costs have increased. So they decide to proceed it” [vii]. If in this way and with this motivation they grow production, they prepare conditions for their economical suicide.
Entrepreneurs inactive request fresh loans, banks are raising interest rates to prevent inflation losses. Companies are incapable to make profits covering the costs of loans. And erstwhile the loans begin to run out, as the loans do not offset the price increase, the sale of stocks, the lowering of prices and the return to the erstwhile state begins, many begin to reduce or end up in bankruptcy their production activity. Credit expansion, triggering boom yet stops. Inflation begins to go beyond itself – deflation, and this becomes first dangerous for capital. The boom ends, which can only last as long as the credit expansion continues. There is simply a social dissection and a change in political power. Mises wrote that “the essence of monetary explanation [of the business cycle] is that it sees that changes in monetary relations due to monetary factors do not have an equal or simultaneous impact on the prices of various goods, wages and interest rates. If it wasn't for this imbalance, the money would be neutral. Changes in monetary relations would then not affect the structure of the economy, the size and directions of the improvement of production in different industries, consumption and wealth or income of different layers of society. Changes in the money and fiduciary credit sphere would not consequence in any temporary or long-term changes in the gross marketplace interest rate. The fact that specified changes can modify the primary interest rate is due to changes in the wealth and income of individuals associated with their uneven impact” [viii].
The goal of advanced interest rates in Russia – inflation or ownership changes?
So money is never “socially neutral”. Inflation is exploited by governments that prosecute a policy based on budgetary deficits and lead to the creation of public debt, which becomes another way of redistribution of national income. specified governments take out fresh loans in weaker money to pay back debt in stronger money.
In Russia, the Central Bank presently maintains 21% interest rates. This justifies the request to fight inflation. On the another hand, operators in the processing industry, peculiarly those with longer production cycles, believe that the Central Bank deliberately limits their availability to loans and forces them to reduce production. As a result, conspiracy theories multiply that the Central Bank is actually a "branch" of the global Monetary Fund and the planet Bank, that it is simply a manifestation of an action within Russia "V Columns" with diversional objectives towards peculiar Military Operations and itself Vladimir Putin. Vladimir Boglaev [ix] considers that the current discussions on advanced interest rates vis-à-vis corporate losses are intended to postpone the public's attention from the planned process of general changes in the structure of the management of the country's economy, its assets and ownership and the lives of the full society.
In this way, the financial oligarchy through the policies of the Central Bank of Russia seeks to accomplish 2 objectives: on the 1 hand, to deepen the process of privatising national assets; on the another hand, to change ownership structure, to change existing owners to others. But it is not the state that will be in charge of the economy – these proposals are the programme of the Central Bank of Russia. It is the Central Bank and the commercial banks that will decide which company will stay on the surface, go bankrupt and whose hands will fall. In this situation, the key question arises: how much is the Central Bank "Russian", whose real hands are commercial banks?
According to Vladimir Boglayev, this is part of the general concept The Secretary-General “Inclusive Capitalism” erstwhile everyone is to be incorporated into economical processes, as if they were all “owners of everything”. What Boglayev stated is not much different from what happened in the 1990s. This is the way any country that joins this global task will go. Russia took on the function of 1 of the leaders of this experiment. If, from this point of view, you look at all the "weird" actions of the Russian government and the banking and financial elite, then there should be no doubt. Why do they do that? They're not idiots. The betting will go bankrupt, and the stock marketplace will grow as part of inclusive capitalism.
Notwithstanding the fact that the Central Bank can actually limit the improvement of production, this blocking of access to credit may be due to the immense shortages on the Russian market, that for these loans nothing could be bought in the majority. Through the advanced price of loans, the Central Bank of Russia is, of course, blocking the improvement of inflation, but is incapable to halt it entirely until interior marketplace production has developed to meet the essential needs of the economy. But this reasoning runs on a closed circle.
Dr Edward Karolczuk
[i] Elżbieta Mikula, “Chapter I. economical growth and income inequality – common couplings. Theoretical take-up’, http://micro.univ.szczecin.pl/bp/pdf/17/0.pdf , 12.10.2008.
[ii] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, p. 361.
[iii] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, p. 361.
[iv] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, pp. 399-400.
[v] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, p. 466.
[vi] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, p. 467.
[vii] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, p. 469.
[viii] Ludwig von Mises, “Human Action. Treaty on Economics”, Warsaw 2007, p. 471.
[ix]https://mail.google.com/mail/u/0/?ogbl#inbox/KtbxLxGPljjjcJjvvdzLDktMjBHWpXDWg?projector=1, accessed 22.12.2024.
Think Poland, No. 27-28 (6-13.07.2025)
