What is inflation and what causes it?

In another thread a friend and I were discussing the nature of inflation.

I contend that inflation is the reduction in the price of money. I also contend that there can be no inflation in a barter economy, only in a money economy.

Thoughts?

 

Mostly, but not entirely, inflation is caused by those who raise prices on goods. That means CAPITALISTS. That means people who own and control major corporations. And when the huge inflation spike was in progress months ago, THREE DIFFERENT CEOs of three different corporation (and there were probably others) announced in their shareholders meetings that they were jacking up prices because COVID provided good cover and a good excuse to do it. They all said they were seeing excellent profit gains from it, which drew standing ovations from the shareholders in the audience, and one of them even said their approach was to increase prices a bit at a time so as to defuse and objection of “price gouging”.

 

For a starting point, we'll need to agree on a definition of inflation. Can you offer one?

 

Inflation: “A rise in prices”.
https://www.investopedia.com/terms/i/inflation.asp

 

Hm, when I think of the term inflation I think, "an increase in the money supply, initiating an increase in the prices of goods and services."

Perhaps the two definitions are not all that far apart.

Here's a question: Can inflation per your definition occur in a non-monetary economony (i.e. one that uses barter)?

 

I don’t see how.

When the money supply increases it usually spurs inflation. But it’s still people raising prices for people.

I had a protracted debate on a forum with a guy who was very knowledgeable of economics about a year ago. My position was that inflation is not necessary if the govt wants to prevent it. He had a few arguments but in the end he had to admit that it all boiled down to will.

 

If we don't see how inflation can exist in a non-monetary economy, then we know that inflaction has something to do with money, not with businesses raising prices, right?

 

Well, by “non-monetary economy” we’re talking about a classless, stateless, moneyless society functioning with abundance, and that is normally called “communist society”. Which is fine. I have no objection to something probably 200 years in the future and which simple evolves out of a healthy society in time. My point is to frame your question as such and ask how there could possibly be any thought of inflation in a post-scarcity society characterized by abundance that allows citizens to just stop by the store in town and pick up anything wanted at no charge?

So yeah, that’s the point: goods available for the taking means inflation becomes a vague, hard-to-imagine brain exercise with no reality.

I don’t know whether such a society is possible, but the conversation has entered the domain of speculation. So let’s speculate!

 

Government cannot control the costs of imported goods increasing because the decreased worth if our dollar. However it can control the lack of goods and services due to lack of labor, not enough imported labor, and extending retirement, and eliminating the incentives to not work.

 

Inflation is one of the weird things in economics because there is no fundamental gauge to be able to measure it.
What is agreed upon is that inflation is a reduction in the purchasing power of a unit of currency. The usual and most common cause of inflation is more currency being added to the market, resulting in, or accompanied by, a dilution of the value of that currency.
If the prices of all things go up by the same percentage, then it is fair to say that is caused by inflation. But it gets more challenging to measure inflation if prices for different things are not changing by the same percentage.

We do have to remember that measurements are fundamentally relative, so in some unusual situations it can be controversial whether all prices going up constitutes inflation when it could be possible that everything is simply becoming more expensive, and it might have had nothing directly to do with change in the worth of the currency. (some point to the coronavirus pandemic as one example of that, though that is hard to say for sure to the extent that prices have not come back down afterwards)

 

"What is agreed upon is that inflation is a reduction in the purchasing power of a unit of currency."
Not agreed upon by all. Other economist consider what you just described to be the effect of inflation, not inflation itself.

 

No, just an economy without money. I'm asking you explain how inflation might occur in such an economy.

 

How did I not answer that? Or do you mean a society in which there is no currency, but purchases, income, bill payment …… all such transactions are electronic only?

 

Yes, exactly.

Let's do a simple mind experiment. We have an economy in which there are two goods: eggs and fish. Let us say that that right now an egg costs one fish and a fish costs on egg. Let's think about how inflcation might occur in such an economy.

 

That’s basically a barter question. Electronic accounts would be much like currency transactions and inflation would continue I’d say.

So those are two different systems. Which do you think is more probable in our future? ….electronic accounts, right?

 

I'm trying to explore the idea of inflation and money.

Do you think inflation could occur in a barter economy in which there are two goods: eggs and fish? If not, why not? And remember, we're all trying to learn here.

 

Sorry but I don’t see it as a realistic question, and therefore I don’t see it as answerable. Care to modify it at all?

 

Sure thing. We're all here to learn. Lay it on me....

 

Haha, you must not have suffered the torture of getting a degree in Economics. They loved that shi t, back in the day.

 

I think a big part of the problem with answering your question is that inflation serves two very different “purposes”. On one hand it is a way of increasing corporate and business profits by reducing the real cost of labor in comparison. So in this case it is an issue deeply rooted in the class struggle.

On the other hand, inflation is also a way of managing problems of supply. For example, if the production facility of the major national producer of widgets burns to the ground, the distribution of remaining widget production would be managed by price inflation for the widgets. Similarly, if COVID-TYPE-5 takes half of the workers out of the production process, the remaining workers have to be supported financially by the existing lower widget production, and that would mean price inflation too.

Theoretically then, an economy of only eggs and fish would be expected to respond similarly.

 

No no. I was asking YOU to “lay it on me” if you have any changes or details to add.

 

Okay, so explain to us what inflation is, and also with respect to money.

 

Demand outpacing supply is the general cause.
Inflation can happen in any type of economy.

 

Oh, okay. Inflation is exactly what the word means. Inflation of the money supply. At least that's what I've been taught.

 

Cool. Can you describe a "general rise in prices" (i.e. inflation) in a barter economy?