Inflation? Inflation!

“A spectre is haunting the globe – the spectre of inflation. The powers that be have entered into an unholy alliance to ignore this natural expectation. But inflation will not be ignored. Daily some party is being decried as inflationist only to hurl back the branding reproach of incontinence. Two things result from this fact:  First, inflation will always be a power, acknowledged or not. Second it is high time that Inflation should openly, in the face of the whole world, publish its views, its aims, its tendencies, and meet this nursery tale of the Spectre of Inflation with a manifesto of itself. To this end, Inflations of various congregations assembled in Guildford and sketched the following manifesto:

1. Capital and Inflation

The history of all hitherto existing society is the history of monetary strugglesCreditors and debtors stood in constant opposition to one another, carried on an uninterrupted,  now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes.  …”      read more :  Michael Hudson’s article “Palatial Credit: Origins of Money and Interest”


“Years of subdued price pressures have raised the spectre of low inflation becoming entrenched in people’s expectations.” says the ECB’s Isabel Schnabel.

Only yesterday one was worried about deflation. So why all the talk of inflation?

With bonds dropping and yields surging “Inflation is a rising concern” frowns The Telegraph and the FT wonders if the “return of the bond vigilantes” means that inflation fears will “spoil the post-pandemic party?”   “Markets are preparing not just for a post-Covid “reflation” trade,”  reports  moneyweek , but for the return of inflation – and  financial repression.”  The BoE’s Andy Haldane  worries about the “inflationary tiger” being let loose by central bank complacency ,  “HSBC’s Steven Major Says Bond Market Fears Short-Term Inflation Can Stick”  and  The Economist concludes :  ” … turmoil in the bond market has calmed for now, but fears of inflation mean more turbulence ahead.”


revolutionary central bankers redirecting QE?


“Inflation Fears Recede After Another Tame CPI Report, Pause in the Storm?” is  Mishtalk’s latest update.

Was it all just a storm in a teacup ?

Being the world champion of solid Schuldgeld, you expect hyper-inflation-traumatised  Germany to be the canary in the debasement mine. But in spite of the Black Zero being desecrated,  inflation is not in the euro headlines.  ‘Inflation? Not here.’ says Europe. (1)

But it could be,  Hans Werner Sinn  warns us, because the ECB has “damaged the inflation brakes”. No doubt  H.W. ‘Captain Ahab’ Sinn  would be with the US inflation mongers, as some call them. Marcus Nunec  says he found hundreds of  inflation mongering articles Talking inflation up or down is all part of the game. Inflation counts as expectation, and expectations are waiting to be managed. By the voices that be. Just like valuations.

So was this an episode of expectation management? Would it have been the Fed who started the recent inflation chatter?

End of January  CNBC’s Eric Rosenbaum told us  that the “Fed’s Powell just talked up a classic Buffett market bogeyman: Inflation”

“Though inflation remains low, investors worry that the Fed could start to taper its market purchases unexpectedly … The Fed has been signalling for some time that its policy on rates and inflation is part of a new policy normal, and it will tolerate higher levels even as employment rises and the economy runs hotter. The truth is that inflation has been in secular decline for decades, says Nicholas Colas … and even all the money printing post-financial crisis failed to spark it. Inflation seems to retain more power as a political sound bite, especially among Republicans, than as a market force.”

The Federal Reserve Bank of St. Louis charts the year over year change in headline CPI, and it has been declining.
Headline CPI – If this chart were a stock chart, would you buy it?  – CNBC

Maybe this ‘storm in a teacup’ is a reminder that the more meaningless and removed from reality the numbers are, the more important the nudging narrative? 

The official inflation numbers do lack meaning. They remove themselves from the realities  of housing, energy and health costs in multiple ways. They aggregate over the winners and losers of inflationary waves. The don’t reflect the real cost of living. Or as Mishtalk puts it :

“Looking for Inflation?  Inflation is easy to find. Look at housing. Look at asset bubbles in stocks and junk bonds.  I estimate inflation is up 3.5% from a year ago, just counting housing, not stock or junk bond bubbles. If you are looking for inflation, the last place to look is where they tell you to look. For discussion, please see Fed Hubris: Housing Prices Show the Fed is Making the Same Inflation Mistake.”

Indeed.    (see also below : (5) inflation – how to count it)

Something to do with money. Especially money as power.


Currency became worthless with kids using it like Lego bricks.
Is Inflation always and everywhere a monetary phenomenon?

Inflation – what is ?

Milton Friedman told us: “Inflation is always and everywhere a monetary phenomenon”. But is it? QE-forever seems to suggest this can’t be right. Freedman’s inflation has been in trouble.  Scroll down for details (2) or jump to other mainstream (3) or hetero (4) theories of inflation. Or catch up on the previous post on Inflation and the Phillips curve

What is inflation? As ever, nearly all depends on what you mean and how you count it.

And how you disaggregate your aggregates:

“In practice, ” writes Jalil Totonchi, “it is not always easy to decompose the observed inflation into its monetary, demand-pull, cost-push and structural components. The process is dynamic, and the shocks to prices are mixed. Furthermore, inflation itself may also cause future inflation. … This paper, mainly attempts to review and analyse the competing and complementary theories of inflation. The theoretical survey in this research work yielded a six-blocked schematization of origins of inflation; monetary shocks, Demand side, supply-side (or real) shocks, structural and political factors (or the role of institutions). It appeared that inflation is the net result of sophisticated dynamic interactions of these six groups of explanatory factors. That is to say, inflation is always and everywhere a macroeconomic and institutional phenomenon .”  read or download article here 

“Macroeconomic and institutional phenomenon?” Sounds like economist lingo for power and positioning, a particularly potent part of which would be the issuance of new money, including credit money.

“Following the 2008 financial crisis,” writes David Barmes “inflation hawks predicted that Quantitative Easing (QE) measures would turn high-income economies into the next victims of hyperinflation. Yet despite central bankers’ best efforts, the past decade has seen inflation remaining consistently below the 2% inflation target. The false predictions were based on misconceptions originating in the debunked theory of monetarism, the core of which Milton Friedman famously captured in the claim that inflation is “always and everywhere a monetary phenomenon”.

In reality, inflation is far more frequently a political rather than a monetary phenomenon, resulting from distributive conflicts, oil price hikes, and political crises in the most extreme cases. Further, price changes often vary across different sectors of the economy, driven by their own particular factors rather than a single policy pushing all prices in the same direction at the same time. Monetary policy alone has little control over the price of goods and services, and in most cases increased government spending generates increased output rather than inflation.”   read whole article at

Friedman no. Friedman yes.  Apparently it depends a lot on how you define the long term. And monetarism.

In other words Friedman could have been right for the wrong reasons.

inflation capital labour

“In the end Milton Friedman is right,” argue Jonathan Nitzan and Shimshon Bichler, ” but only in part. Inflation is always and everywhere a monetary phenomenon; but it is also always and everywhere a redistributional phenomenon.”    

In other words if you accept money=power, then inflation=monetary may well be the long term truth beyond all the short- to medium-term fixing, shocking, pulling, pushing and mixing playing out in the power-games over positions and valuations. Which also means it’s a bit of a ceteris paribus tautology. This how Blair Fix puts it:

…”Back to inflation. Milton Friedman (1994) proclaimed inflation “is always and everywhere a monetary phenomenon”. His slogan is a tautology since anything to do with prices automatically has to do with money. The actual science lies in what Friedman omitted. The reality is that inflation is always differential: Some companies raise prices faster than others. That means inflation is always and everywhere a restructuring of the social order. It is a boon for some firms, but a bust for others. This is the inescapable conclusion reached by Jonathan Nitzan (1992) after an exhaustive look at the US data. Far more than just a “monetary phenomenon”, then, the inflation rate signals instability in the social order. That  instability ,it seems, translates into capitalists’ fears about the future. When the price system is more unstable, capitalists discount present income more steeply.”…         RWE 97 p86 Blair Fix 2021

Just follow the money…


(1) Inflation? Not here, says Europe 

“The amounts of the European recovery plans pose absolutely no inflationary risk,” said Fabien Tripier. “We have a European recovery programme … considerably less strong, and a loss of growth that is much greater, so there aren’t the same risks of overheating as in the United States.”  According to the Barron’s Marie Heuclin,  the head of the Banque de France  Francois Villeroy de Galhau  insisted that there is “no risk of overheating or a sustained rise in inflation” in the eurozone  and  the French Economic Observatory  also “… does not believe that if the Fed is pushed by the markets into raising rates that the European Central Bank would be forced to follow suit.”

Even Germany’s Hans Werner Sinn rules out inflation above 10%. He does not believe in an imminent “kräftige Inflation” but reckons it has become more likely because the ECB has “damaged the inflation brakes”.

“Umkehrprozesse brauchen ihre Zeit. Man kann nicht wirklich begründet prognostizieren, wann wie viel Inflation kommt, aber man kann sagen, dass höhere Inflationsraten in den kommenden Jahren wahrscheinlicher geworden sind, weil die EZB die Inflationsbremse lädiert hat.”

The ECB continues to be more worried about deflation than inflation.  “Years of subdued price pressures have raised the spectre of low inflation becoming entrenched in people’s expectations.” says the ECB’s Isabel Schnabel and elegantly explains in banking lingo how one is currently trying to cope with interest, inflation and growth all hovering near zero:

“One of the greatest conundrums and policy challenges of our times is the coincidence of persistently low real long-term interest rates and low inflation. …  Even before the coronavirus (COVID-19) pandemic, inflation across many advanced economies had been falling short of central banks’ aims for nearly a decade. In the euro area, hopes that inflation would sustainably recover to levels closer to 2% have been repeatedly and persistently disappointed, despite highly favourable financing conditions.  …

Years of subdued price pressures have raised the spectre of low inflation becoming entrenched in people’s expectations. Considering that financial markets believe that real interest rates will remain in negative territory for the foreseeable future, private investors appear to harbour serious doubts about the capacity of the euro area economy to chart a sustainable path towards higher nominal growth. …  The experience of the past decade requires us to think differently about the optimal policy mix in the vicinity of the effective lower bound. In particular, whether low inflation will prevail in the medium term will depend not only on monetary policy but also on the decisions made by fiscal policymakers, including on the structural side.”            read the whole speech here   2012   Germany should not pay for the bankruptcy of Europe, at least according Hans-Werner Sinn, head of the Ifo Institute for Economic Research at the University of Munich.  “If debtors cannot repay, creditors should bear the losses,” Sinn argues in an op-ed in yesterday’s New York Times. He further states that “It is unfair for critics to ask Germany to bear even more risk” in helping to resolve problems in Europe.  What Sinn presents is a neat ethical dream in which all parties are held responsible for their actions. The trouble is this dream does not face up to political reality.

(2) Inflation is always a monetary phenomenon ?

Marcus Nunec  wants  “… to tell a story showing what drives inflation and then, with that story in hand, identify the factors that could foster inflation going forward. The story will be told guided by the overriding principle that inflation is a monetary phenomenon.  …  ”  And he does tell a story, how true to Friedman I can’t really tell. Here is a taster of Marcus Nunec’s NGDP & Trends

The LEVELS chart below may serve as a “decision map” for the Fed. The red dotted line represents the LEVEL trend path of the Great Moderation, while the green dotted line the LEVEL trend path that defined the 2010s. The blue line is actual NGDP.

Will the Fed be content in bringing NGDP back to the more recent trend level path, or will it strive to get somewhere nearer to the GM trend level path? (And practice Nominal Stability at a specified stable growth rate from then on).  I believe that´s a much better way to frame the problem, with monetary policy focusing on offsetting changes in velocity (which will likely be rising with the waning of the pandemic) in such a way as to guide NGDP to its “desired” destination.  That strategy (as opposed to “looking at the labor market”) will help keep any rise in inflation a temporary phenomenon and keep inflation expectations anchored.”                                   read more at


And here is  Mark Thoma  with a robust defence of Friedman’s Inflation which is “…not what your friendly newscaster means when reporting the monthly inflation rate on the nightly news.”  Friedman’s Inflation only covers

” … cases in which the price level is continually rising at a rapid rate. It is this definition of inflation that Friedman and other economists use when they make statements such as “Inflation is always and everywhere a monetary phenomenon… Our aggregate demand and supply analysis shows that high inflation can occur only with a high rate of money growth. As long as we recognize that inflation refers to a continuing increase in the price level at a rapid rate, we now see why Milton Friedman was correct when he said that “Inflation is always and everywhere a monetary phenomenon.”               read more at economistsview

I wonder how Professor Thoma would grade this recent essay from an LSE student : “THE CHANGE OF PARADIGM OF MILTON FRIEDMAN”

Milton Friedman succeeded because Keynes had to be buried. It came out that the paradigm of the curve of Philips blew up, and the world was facing stagnation along with inflation. As Keynesianism couldn’t come up with an answer to unemployment and inflation at the same time, monetarism was imposed as the only way to control the situation. Instead of putting all the eyes on unemployment, inflation started to be the overall nightmare. Inflation started to be seen as a disease for the society. Indeed, it was able to destroy it.

There were the examples of Germany, Austria, and Russia after World War I, when employers would pay their workers three times a day, after breakfast lunch and dinner so they could go out to spend it before it lost all its value.

So Milton Friedman came on and explained his theory of the causes of inflation. The first step to understand Friedman’s theory, is to accept that inflation is always a monetary phenomenon. It’s always a result of too much money, of more rapid increase in the quantity of money than in an output. Moreover, in the modern post gold era, his important intellectual basis was that governments control quantity of money. So, he would say that “inflation is made in Washington DC”.

So Milton Friedman came on and explained his theory of the causes of inflation. The first step to understand Friedman’s theory, is to accept that inflation is always a monetary phenomenon. It’s always a result of too much money, of more rapid increase in the quantity of money than in an output. Moreover, in the modern post gold era, his important intellectual basis was that governments control quantity of money. So, he would say that “inflation is made in Washington DC”. In Milton Friedman’s thought it’s a printing press phenomenon. He spend his life trying to prove that there had never been in history a monetary supply growth without being followed by inflation. “Evidence is in the linkage between both” he would say.

The question is, why? Why does this happen?  …

Inflation Money Supply US Japan

In both cases, we can see that whereas money supply is in a constant increase during the whole period, inflation slumps over 1975 drastically after measures taken by Governments to fight oil price increase. If as Friedman said pressures in costs barely affect inflation, inflation should had followed the same path of the money supply.

As we can see, American Quantitative Easing policy exactly proved the opposite of what Milton Friedman supported. From a monetarist point of view, the paradigm has oppositely changed due to the fact that a huge increase of monetary supply has not lead to inflation. On the contrary, we´ve got money supply inflation without price inflation.  …

We can perfectly tell Milton Friedman that Inflation is “not” always and everywhere a monetary phenomenon. Besides, there is evidence of the strength that public spending has when aggregate demand is slumping. Austerity measures are proving counter-stimulating in Europe due to a simple axioma: if you are flying and the plane´s got too much weight, last thing you would drop would be the engines.”


Martin Armstrong also feels strongly about Clinging to Old Theories of Inflation:

“The sad part is these people who just yell and scream that I am wrong because inflation is caused by only a rise in the supply of money, to be as polite as I can, they are just incapable of understanding complex systems. Even in nominal terms, inflation can be caused by different simulations.

The currency declines and we have asset inflation as I just laid in the USA from 1934 to 1937, or just look at Turkey and Venezuela in real time. The stock market rises in proportion to the decline in value of the currency because assets retain an international value.

Then we have asset inflation as in the DOT.COM bubble where capital is rushing into some new hot investment sector. That specific asset will rises in value against all other assets. This is caused by speculation and is NOT a reflection of the decline in value of the currency. This is easily distinguished as one sector rising compared to all sectors rising because of a decline in currency value.

Then we have demand inflation, which can be illustrated by a sudden shortage of a particular product. This has appeared in commodities as the result of a serious weather condition that results in a shortage of food due to crop failures. This type of inflation has also appeared at Chrismas time when some doll becomes the new rage as was the case with Cabbage Patch Dolls. …

This is just not a simple equation for increasing the supply of money = inflation. …  You have to look at the whole system. Anyone who says inflation is created by an increase in money supply is off the reservation clinging to old theories that ignore debt, banking leverage, international capital flows, and that is just the beginning. …  Inflation and interest rates follow a Bell Curve. Everything will be normal until confidence is lost. Once that threshold is crossed, then hyperinflation begins and interest rates rise in a desperate move to try to attract capital and confidence. …

There is yet another dimension that you have to add to this complexity. The BULK of the money is actually created by the banks in leveraged lending. If I lent you $100 and you signed a note that you would repay it, then the note becomes my asset on my balance sheet. I can take that to a bank and borrow on my account receivables. In this instance, just you and I are creating money. Now let a bank stand between us. I deposit $100 and they lend it to you. We now both have accounts that show we have $100. We just doubled the money supply and nobody printed anything. These theories they cling to are old and antiquated. They pre-date even consumer credit and go back to the days of Gresham’s law from the 16th century. I think a few things have changed since then.”

Clinging to Old Theories of Inflation    2021   Friedman vs Phillips: A historic divide   Manoj Pradhan, Charles Goodhart 26 February

“Milton Friedman and Bill Phillips most likely assumed that their separate methods for predicting inflation would lead to much the same outcomes. Recently, however, monetary aggregates and the Phillips curve have provided extremely disparate signals. This column discusses recent economic developments leading to these disparate signals, concluding that inflation will most likely end up somewhere between the predictions of the two models – which is almost certainly higher than what central banks and the IMF are expecting.”  2010  Empirical evidence on alternative theories of inflation and unemployment : a re-evaluation for the Scandinavian countries    George Woodward & J. Ram Pillarisetti

The paper re-evaluates some inflation and unemployment models for the Scandinavian countries, utilizing a general to specific methodology. Two nested models are considered to represent a spectrum of unemployment and inflation models in order to examine the monetarist versus new classical unemployment debate, and the Keynesian versus monetarist inflation debate. Using an improved methodology and larger data set different results from those of Akkina and Varamini are obtained. In particular, for unemployment unequivocal support is found for the new classical model, but for inflation, the empirical results support the Keynesian model for Sweden, and reflect mixed results for Denmark, Finland and Norway.


researchgate   2012  The Samuelson-Solow Phillips Curve and the Great Inflation   Thomas E. Hall   William R. Hart

“The notion of the Phillips curve as a policy tool was first advanced in 1960 by Paul Samuelson and Robert Solow. Despite their pointing out features of the curve that would later become prominent, (i.e., that the curve could shift), it helped create the environment that allowed inflation in the United States to accelerate during the 1960s. Ironically, Samuelson and Solow
never estimated their Phillips curve, but instead hand drew it to fit the data for the twenty-five year period from 1934 to 1958. Using the data and econometric techniques available to them at the time, we estimate the Samuelson-Solow Phillips curve, find that it bears little resemblance to their hand-drawn curve, and discuss the policy implications of the two curves.”


(3) mainstream theories of inflation

Top 3 Theories of Inflation (With Diagram)

three theories of inflation, i.e., (1) Demand Pull Inflation, (2) Cash Push Inflation, and (3) Mixed Demand Inflation.

Top 3 Theories of Inflation (With Diagram)  Article Shared by M. Agarwal

Different economists have presented different theories on inflation. The economists who have provided the theories of inflation are broadly categorized into two labels, namely, monetarists and structuralists.

Monetarists associated inflation to the monetary causes and suggested monetary measures to control it.

On the other hand, structuralists believed that the inflation occurs because of the unbalanced economic system and they used both monetary and fiscal measures together for sorting out economic problems.

The problem of identifying the basic nature-and fundamental source of inflation continues. Does inflation arise from the demand side of the goods, factor and asset markets or from the supply side or from some combination of the two—the so-called mixed inflation. Many economists have come to believe that the actual process of inflation is neither due to demand-pull alone, nor due to cost-push alone, but due to a combination of both the elements of demand-pull and cost-push—called mixed inflation.



The Supply-Shock Explanation of the Great Stagflation Revisited   2010  Alan S. Blinder Jeremy B. Rudd

U.S. inflation data exhibit two notable spikes into the double-digit range in 1973-1974 and again in 1978-1980. The well-known “supply-shock” explanation attributes both spikes to large food and energy shocks plus, in the case of 1973-1974, the removal of price controls. Yet critics of this explanation have (a) attributed the surges in inflation to monetary policy and (b) pointed to the far smaller impacts of more recent oil shocks as evidence against the supply-shock explanation. This paper reexamines the impacts of the supply shocks of the 1970s in the light of the new data, new events, new theories, and new econometric studies that have accumulated over the past quarter century. We find that the classic supply-shock explanation holds up very well; in particular, neither data revisions nor updated econometric estimates substantially change the evaluations of the 1972-1983 period that were made 25 years (or more) ago. We also rebut several variants of the claim that monetary policy, rather than supply shocks, was really to blame for the inflation spikes. Finally, we examine several changes in the economy that may explain why the impacts of oil shocks are so much smaller now than they were in the 1970s.


(4) hetero theories of inflation

Positive   Why Covid-19 should make us rethink the concept of inflation

Why Covid-19 should make us rethink the concept of inflation

For the Bank of England, this asset price inflation and inequality isn’t an unwanted side-effect of quantitative easing – it’s a design feature. In the Bank’s own words, an objective of QE is to “stimulate the economy by boosting a wide range of financial asset prices … when demand for financial assets is high, with more people wanting to buy them, the value of these assets increases. This makes businesses and households holding shares wealthier – making them more likely to spend more, boosting economic activity.”

As the Bank of England has explained, one of the main ways it thinks QE drives this wealth effect is through the portfolio rebalancing channel. The theory is that new money injected into financial markets will see bondholders reinvesting funds into assets issued by companies, which should lead eventually to higher spending in the economy. Or as then Bank of England governor Mervyn King put it to the BBC in 2011: QE will work.     …

Crediting funds into the Ways and Means account for the government to spend would be a fairer and more sustainable means of supporting the economy and bringing inflation up to the Bank of England’s target, rather than further inflating asset prices with additional rounds of conventional QE, or the introduction of negative interest rates. £50 billion of new money spent into the real economy would have likely achieved more than £500 billion of conventional QE, with less negative side effects such as asset price inflation. With coronavirus exacerbating long-term deflationary trends, and the Bank of England expecting that Brexit could lead to additional spare economic capacity, such direct forms of monetary financing may actually be necessary to help get inflation up to the 2% target.   …

More broadly, we need a new framework for macroeconomic policy, to ensure that we aren’t relying on monetary policy alone to keep the economy afloat, which will lead to even more burdensome private debt, inequality and instability. The Bank of England needs to be able to communicate when monetary policy is pushing on a string and the Treasury needs to step up with fiscal policy. It needs to be honest to the public about the ability of the central bank to support public spending, and to dispel the idea that money the government ‘owes to itself’ via QE needs to be paid back with counterproductive austerity measures.”

A History of Money: From Ancient Times to the Present Day   2003  Inflation  –  The Pendulum Meta-theory  – Quality versus Quantity of Money  – An essay based on a theme from the book by Glyn Davies “A history of money from ancient times to the present day 2002.

Causes of Inflation –  One of Glyn Davies’s main themes is the problem of simultaneously trying to control the quality and quantity of money. He discusses many cases of inflation over the past couple of thousand years and identifies several (not necessarily mutually exclusive) causes.

Conflict between the Interests of Debtors and Creditors  –  The history of money is one of “unceasing conflict between the interests of debtors, who seek to enlarge the quantity of money and who seek busily to find acceptable substitutes, and the interests of creditors, who seek to maintain or increase the value of money by limiting its supply, by refusing substitutes or accepting them with great reluctance, and generally trying in all sorts of ways to safeguard the quality of money.” (page 30). The government itself is often the most important debtor and at times may be a major creditor.

“…it is of the utmost significance to realize that because the monetary pendulum is rarely motionless at the point of perfect balance between the conflicting interests of creditors and debtors, so money itself is rarely ‘neutral’ in its effects upon the real economy and upon the fortunes of different sections of the community…” (page 32)

“…the market gives no priority to posterity or the poor: silent majorities.” (page 657)

“In the normal course of events money is rarely ‘passive’ or ‘neutral’ while the safe haven of equilibrium on which so much economists’ ink has been spilled…is equally rarely attained.” (page 658)

Pendulum Theory

As a result of the above-mentioned factors the supply of money tends to alternate in every age between too little and too much, with the pendulum swinging from excessive concern with the quality of money to the opposite extreme of an inflationary, excessive quantity of money. This is the basis of the author’s pendulum meta-theory of money, i.e. a

“general theory comprising sets of more limited, partial theories, which spring out of the special circumstances of their time. The enveloping pendulum or metatheory also explains why the usual theories of money, despite being so confidently held at one time, tend to change so drastically and diametrically (and therefore so puzzlingly to the uninitiated) to an equally accepted but opposite theory within the time span appropriate to historical investigation.” (pages 31-32).

read whole essay on GM here

CasP   Capital as Power  ch 16 Depth (Inflation)  ,excerpts        NITZAN etal Capital as Power 2009 read or download here


Husbandman: I think it is long of you gentlemen that this dearth is, by
reason you enhance your lands to such an height, as men that live thereon
must needs sell dear . . . or else they were not able to make the rent again.
Knight: And I say it is long of you husbandmen, that we are forced to raise
our rents, by reason we must buy all things so dear that we have of you . . .
which now will cost me double the money. . . .

From a sixteenth-century text, A Discourse of the Common Weal of this Realm of England


The farmers and knights of the sixteenth century could be forgiven for failing to understand the universal ‘laws’ of inflation. They didn’t realize that their own local problems in fact were part of a much bigger global process. They were oblivious to the influx of precious metals and ignorant of the growing importance of credit and capitalization. They had no comparative data to look at and no in-house economists to ‘interpret’ them. In fact, as far as they were concerned, inflation didn’t even exist. There were only increases in prices. The term ‘inflation’ came into common use only three centuries later.

Nonetheless, these illiterate sixteenth-century folks were smart enough to see what many present-day economists wish we forgot – namely, that inflation is a conflictual process of redistribution. The prices that the farmers charged were costs for the knights, while those that the knights set were costs for the farmers. Both hiked their prices, but never at the same rate. And this differential meant that those who raised their prices faster redistributed income from those who did so more slowly.

But the inflationary struggle isn’t simply a tug-of-war between ‘independent’ individuals or groups in society.1 It is an entire regime, an encompassing political process of transforming capitalist power. Note that inflation per se is much older than capitalism. As we have seen, prices already existed in the early civilizations and were leveraged and manipulated well before the arrival of capital. But capitalism is the first mode of power to be overwhelmingly denominated in prices.

And hence it was only with the rise of accumulation that inflation could emerge as a key aspect of the social creorder; and it was only in the twentieth century, with rise of large organized units, that inflation became a defining feature of the state of capital. The purpose of this chapter is to examine some of the ways in which prices and inflation assume this role through the process of differential accumulation. …

As we shall see, inflation often redistributes income from wages to profits and from small to large firms; it elevates the differential earnings per employee of the leading corporations; and it deepens the ‘elemental power’ of dominant capital. But the process is full of puzzles. First, there is the general theoretical conundrum. Conventional theory associates inflation with growth, yet reality usually brings inflation together with stagnation. Since this combination is not supposed to happen, economists decided to contain the damage by giving it a special name. They called it ‘stagflation’ – an anomalous mixture of stagnation and inflation that shouldn’t be confused with ‘normal’, growth-driven inflation (growthflation?).

And then there is our own bizarre proposition that stagflation, whether normal or anomalous, fuels the differential accumulation of dominant capital. Most readers will probably find this suggestion somewhat difficult to swallow. How could firms gain from a combined crisis of rising prices, stagnating production and falling employment? Why should this crisis benefit larger firms relative to smaller ones? And if stagflation is so beneficial to the most powerful groups in society, why don’t we have it all the time? Clearly, there are many questions to sort out here, so it is worthwhile to backtrack a bit and provide some context.

The historical backdrop
To start with, there seems to be a general neglect, including among critical political economists, of the historical significance of inflation for capitalist development. On the face of it, this neglect is rather surprising. Inflation – commonly defined as a general rise in the price of commodities – is hardly new. According to David Hackett Fischer (1996), since the thirteenth century there have been no less than four major inflationary waves, or ‘price revolutions’ as he calls them. Figure 16.1 illustrates the pattern of these waves in the UK, a country whose price indices go back the farthest (note the log scale).10 The first wave occurred during the thirteenth century; the second during the sixteenth century; the third in the latter part of the eighteenth century; and the most recent began in the early twentieth century and is still going. As Fischer argues, each of these price revolutions was accompanied, particularly toward the latter part of the wave, by a deepening socio-economic crisis.

The crux of inflation is not that prices rise in general, but that they rise differentially. Inflation is never a uniform process. Although most prices tend to rise during inflation, they never rise at the same rate. There is always a spread, with some prices rising faster and others more slowly. From this viewpoint, the engine of inflation is a redistributional struggle fought through rising prices.

The overall level of inflation is merely the surface consequence of that struggle. So in the end, Milton Friedman is right – but only in part. Inflation is always and everywhere a monetary phenomenon; but it is also always and everywhere a redistributional phenomenon.

NITZAN etal Capital as Power 2009 – read or download here              more about CasP here   2017   Nova Economia    Marxist theories of inflation: a critical review.    by  Giliad de Souza Silva  and Eduardo Augusto de Lima Maldonado Filho

The inflationary phenomenon becomes relevant in the economic literature after the 1960s, from the moment when inflation turn into a problem of greater magnitude and with a deep rooting in the advanced capitalist countries. Marxism has built his explanations of the inflation based principally on the following approaches: i) conflicts over the distribution of income are, in short, the most significant cause of inflation; ii) inflation is linked to the growing power of monopolies, being reinforced by the interventionist policies of the State; and iii) the phenomenon is explained by the discrepancy between endogenous generated increases in supply and demand for credit money. The aim of this paper is to revisit these Marxist approaches, as found in Saad-Filho (2000), but emphasizing the methodological critique. More specifically, our goal is to perform a methodological critique showing the continued validity of Marx’s method to understand the inflation phenomenon of post World War II.     Marx and the “Minsky moment” –  Liquidity crises and reproduction crises in Das Kapital  –  Anthony De Grandi    and Christian Tutin    read or download here

Karl Marx never put a final point to his theory of economic crises, which remained unachieved and torn between profitability crises and realization crises. According to Marx, every crisis goes through what he called a “monetary moment”, which is the moment – usually called since 2008 the “Minsky moment” – when credit can no more be substituted to cash payments, because the bank themselves are facing liquidity needs. This paper argues that monetary and financial mechanisms are at the core of Marx’ vision of capitalist instability. But two conditions are required for transforming this vision into a consistent theory of crises: a clarification of his theory of monetary interest, and an explanation of the link between financial instability and the reproduction process.
As shown in section 1, the reference to liquidity crisis goes through all his work from the Contribution to the manuscripts of book III of Capital.  Section 2 briefly presents, Marx’ financial concepts including fictitious capital, interest-bearing capital or banking capital.  Section 3 is devoted to a discussion of Marx’ monetary theory of interest. Section 4 shows how the mechanisms of financial instability in Marx’ writings involve a notion of weakening of the financial structure, which has much in common with Minsky’s hypothesis of financial instability.

Section 5 addresses the missing point in Marx’ theory, which is the formal link between “real” accumulation of capital and the development of finance. Starting from Hilferding’s Finance Capital, we suggest that this link might be established in a bi-sectoral model of the economy where bank credit allows the displacement of capital flows which originate during the boom the formation and enlargement of disproportions which will come to an end at the moment when the credit collapses because of the weakening of the financial structure.


(5) Inflation – how to count it

Visit MishTalk for expert analysis of US inflation   Inflation Accounting     23/2/ 2021    by V. Ramanan

A good macroeconomic model would use national accounts and the flow of funds with behavioural hypotheses. It’s complicated by the fact that prices of goods and services change. It’s not just that if prices of goods and services change, you’re consumption would change in response to that, but also because say the deposits you hold in the bank is worth less.

So your behavioural equations need to be modified. It’s not easy. Wynne Godley recalls in his book Monetary Economics:

And no lesser authority than Richard Stone (1973) made the same mistake because in his definition of real income he did not deduct the erosion, due to inflation, of the real value of household wealth.

Although economists have known for quite some time that the CPI overstates inflation, and thus changes in the cost of living, the report put an old issue back on the front burner: What can the Bureau of Labor Statistics (BLS) do to improve the best known measure of inflation?   1997   Are There Good Alternatives to the CPI?   by Charles Steindel
Critics of the consumer price index—the most widely watched inflation measure—contend that it overstates inflation by as much as 1 percentage point a year. Some have argued that alternative indexes eliminate the CPI’s upward bias and offer a more accurate reading of inflation levels. A closer look at these alternatives, however, reveals that they have substantive problems of
their own, suggesting that the CPI, though flawed, is still our most reliable indicator of changes in inflation    Measuring inflation


inflation now – articles + updates here 


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