Inflation / Free-Market

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ReginaldDiepenhorst
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Inflation / Free-Market

Postby ReginaldDiepenhorst » 23 Nov 2014, 22:38

When I share something about BIG or EMS there is always a lot of hassle with Inflation. Yesterday someone replied that the BIG in Swiss would cause hyperinflation. I reacted to this = showing I didn’t understand it that well.

I went to search for some information about inflation as to ‘When does inflation occur’ and ‘When not’?

I came across this article: http://www.forbes.com/sites/johntharvey ... inflation/

My only understanding about inflation is what I have learned from high school: “When people press too much money it causes inflation”. Yet.. I couldn’t see how a BIG or EMS would actually cause inflation.

In this post I’d like your perspectives.

When reading the article I am left with the following pointers:

The BIG does not create inflation per sé. It would only create inflation when the money is ‘created’ (thus pressed) and if you actually get the money from let’s say profits from companies: There should be no inflation. As the amount of money that is exist is the same, though it can now be spend my more people.

The only way it can create inflation is when companies start charging more for their products. The problem of inflation then lies with the companies and the free market as in how much they may charge and is not a direct result of the BIG. It just exposes the power companies have.

To make this more practical. Let’s say: We give free rent housing now to everyone. This in itself is not causing inflation, though the people DO have more money to spent. The only way inflation then can occur is when these house-owners (to whom one pay the rent to) decide to Ask more money than they initially did. Thus this would require a maximum freedom of a price that can be asked to prevent abuse.

I see that this is a problem to the people who believe in a Free market which is just another word for: Free Financial Abuse or Free Range of Profit Margins.

Thus bottom line:

BIG does not create inflation on itself when it’s backed up by money that already exists.

Now where I find difficulty with is the point that if money is created by banks and how it exactly does create inflation. What I have read in the article and understood it correctly… inflation should only occur is the printed money is higher than the demand of money. Yet I cannot grasp the point of ‘Demand’. Like I know there is a demand for money, so how does 1+1 add up?

Another point I find difficulty with is that I’ve learned that money should always be backed-up by something. And I still have the understanding that it’s gold. Though I have ‘heard’ that if we add up all of the money that currently exists within this world, does not equal the amount of gold, thus ‘what is it back upped by?’.

If you say like: Well it’s not back upped by anything, and that’s why inflation actually occurred, then Why has this not been repaired or is it in repairable?

Is someone able to explain this to me and show me whether there are some ‘assumptions/misconceptions’ here?

And then if it’s true what I said in the first part, how can we common sensically show that the ‘free market’ then is the problem and should be adjusted in relation to the ‘inflation point’ and the solutions we really have for this?

Thanks!


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Marlen
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Re: Inflation / Free-Market

Postby Marlen » 23 Nov 2014, 22:42

We've recorded a hangout addressing this Inflation point, so I suggest to check it out first:

[47] Inflation and Living Income Guaranteed



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Re: Inflation / Free-Market

Postby Marlen » 24 Nov 2014, 20:11

Here's a great article explaining this point in detail:

https://medium.com/basic-income/wouldnt ... 71d69f15e7



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Leila
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Re: Inflation / Free-Market

Postby Leila » 24 Nov 2014, 23:20

Here my reply from the LIG discussion page:

Hey Reginald,

Scott's article as well as Yogans story should have given you a pretty good picture of how to approach inflation, so I will address the other points.

What may add to your confusion is that often, the ‘demand for money’ only refers to someone desiring their assets/wealth to be liquid in contrast to holding it in the form of bonds, stocks, property etc. So there what they are looking at is whether people want flexibility and so liquidity/cash – or hold more static assets which are harder to turn into cash but which provide the holder/owner with a return (like interest for example) or protects them from inflation (as their nominal value will increase with inflation, keeping the real value intact). So they are not looking at whether you 'want money' but how you want the money you already have (cash or not?).

In a way, it would be hard for traditional economics to ‘explain’ the demand for money as what you think the concept would refer to, because then you’d be asking how much someone is willing to pay to have money – which doesn’t make any sense - as you then 'need money' to show that you want money; while obviously those who don't have money want money. In a way, this illustrates how the whole concept of demand in economics currently should be taken with heaps of salt, and is completely inadequate in providing a system for determining value.

The gold standard was abandoned during the wars, as many resulted to printing money to be able to finance the wars rather than being limited to the amount of gold reserves being around to finance the war. This then destabilised the whole system leading to its eventual failure.

There’s a lot of outrage and criticism about how our current money is a ‘fiat currency’, which means that it isn’t backed up by anything (like gold) but functions only based on trust/agreement that this money is ‘worth something’. Though, if you have a closer look: even if money is backed up by gold, it is actually still a fiat currency, because you are backing up one substance/material with another substance/material, which we have agreed has value (like gold). So whether the money is ‘backed up’ by gold or not, is really not that big of an issue.

Yes, there were some plus points at having the money be backed by gold, as there was a bigger sense of unification whereas we are now dealing with lots of currencies and volatility, which opens a door to greater destabilization. It also forced a restriction on how the money supply should be managed, as there’s a direct link between the amount of gold around and the amount of money in circulation; and so keeping prices stable. Yet here we have to realise, that these ‘effects’ are not only inherent to backing one’s money with gold – but can also be achieved by sheer decision-making and will-power (meaning, just because you can mess around with the money supply doesn’t mean you should. The gold standard forced caution, yet we can enforce caution without needing to link our money to gold, it's a management decision that needs to be made, and then be sticked to).

So returning to the gold standard is not really a solution. If you look at it, it’s kind of arbitrary to want to back up money by something like gold – and allow that to determine the value. The amount of gold around has no relation to who/what needs money. So what makes more sense is to have your money supply for instance be directly related to population levels, as in the end money is about serving people/life and not gold; as that which makes money valuable is the extent to which it can support people and provide them access to life-enabling resources.

For money to work, it needs to be managed practically and responsibly, no gold necessary, – which is exactly what is lacking in how it is currently being managed, and why we propose a Living Income Guaranteed.




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