Tuesday, December 31, 2013

Inflation and Capitalism Don't Mix

Don't go around tonight
Well, it's bound to take your life
There's a bad moon on the rise
--Creedence Clearwater Revival

People erroneously associate inflation, defined here as higher prices or lower purchasing power of money, with capitalism.

But inflation is not endogenous to capitalism. In fact, capitalism puts downward pressure on prices. As productivity increases, a particular quantity of money is spread over more units of production, resulting in generally lower prices per unit.

This is merely another way of saying that capitalism improves prosperity--more economic resources per unit of effort. More purchasing power per unit of production.

If you question where inflation comes from, the answers lie elsewhere.

1 comment:

dgeorge12358 said...

I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.
~Friedrich August von Hayek