The present notion of inflation rests on the conclusion that wealth only expresses capital in commerce, goods in commerce and private goods and services. If this is so, then wealth is merely a bubble, a cocoon projected from the remainder of reality.
Within the bubble lies the notion of wealth creation, the aim of which is to add to wealth which presumably is to add to the size of the bubble. Within the bubble is market activity which is fired by wealth in the form of revenue displacement and reality, reality being displaced according to degree of acceptance. Since market activity is fired by wealth and wealth is the eventual benefactor of the activity what becomes evident is a self-induced perpetuating inflationary tendency toward monetary growth. whereby wealth creating activity can blow itself out of proportion, i.e. market activity is pressing against wealth and the only release that wealth has is to push yet more revenue into the market.
The rocking characteristic of this is prices which push against revenue or pull against reality; the true effect is not an inflation of worth but a devaluation of reality. It has been said by Sir Stafford Cripps that inflation is "too much money chasing too few goods", i.e. a reality notion, and I will be examining that context later. However, I wish to turn to the fact that the determination of wealth is regarded as being restricted to those things that man can utilise. In effect it regards adding value as a one-way process with a constant infinite capacity of the earth to supply- resources. The truth is, however, that wealth being the power of reality must accept what reality is at any given moment and as we are using the earth's finite resources and damaging the earth's ecological balance, then it follows that wealth creation must be responsible for this. Consequently we can make the statement that wealth, the power of reality, presides over a diminishing depreciating earth which is constantly being devalued, i.e. a highly inflationary situation.
If you revert to the economic limitations of the notion of wealth, it becomes clear that we are victims of our own philosophy in the sense that we value wealth and money more that reality, we readily use rapidly depreciating goods/services and depreciating earth so we are quite prepared to devalue reality i.e. most people won't care that a washing machine has gone up £20, probably because they won't know; all they are interested in is capacity to buy and retain wealth. Companies are more interested in wealth creation than what they are actually selling. What inflation is about is the false notion of the power of money no matter the consequences upon reality - and this is a deep-seated cause of inflation in this country.
Another deep-seated cause of inflation is the pervasive attitude to profit. The main purpose of profit in any business is to create wealth and as the business has a duty to shareholders to create wealth, that is its main drive; in other words we have come away from the concept that we need profit in order to add value to reality so that we can exchange for reality - profit has assumed one purpose: wealth creation. The concept of profit now is to improve the asset value of a company in order that it has to go back into the market to make yet more profit ad infinitum, ie profit has become about money, not exchange. As a result of this there is always money sloshing around the economy looking for venture or goods, whether it be in a private, or public sense. We said before that profit on its own is pure inflation.
The current government attitude to inflation is to monitor retail prices on index of rates and average out percentage drift over the whole model; they then monitor wage claims and try to stop wages going ahead of prices; seeing as there is now very little retail price maintenance they can do little about prices. The problem with the RPI is that in some areas it is obtuse, i.e. it does not specify a particular product. It will say something like "children's socks"; if the girl in the shop looks at a size 6 one month and it's 50p but the following month a different girl looks at a size 12 and it is 75p, it looks as if we have runaway inflation; also in the case of small wares, say foodstuffs, something that sells for 2Op can only go up 5% or 10% and if wage claims are running at 7% the item can only go up 10%. But the whole problem is that it is not a measure of inflation, it is an inflation rate, i.e. it does not suggest what total income, what level of goods are in the market place, neither can it suggest the mix that is absolutely contracted to be correct; it is only possible to suggest inflationary trend on the strength of what market trade is done and what balance of disposable income there is to actual goods, as well as a review of prices. I would suggest that looking at a very small percentage of prices in a very limited number of shops is like looking at a pimple on the moon.
The next piece of work is not to suggest that particular inflation is caused by the pure phenomenon of too much money and too few goods. I think it is important to show how different types of industry and commerce affect the market in wealth creation and how the market can easily become bent to the point where it looks like an inflationary or deflationary effect. We all know the success of Japan who are now dependent upon export yet they do have an inflation problem. The point is if they are building wealth on the strength of exports, they are releasing revenue into their market in the form of disposable income, yet the source of revenue does not release goods into the home market so there is a conflict in entities; there is something that looks like inflationary disposable income yet no goods, so as a consequence Japan carefully monitors what their home market goods should comprise and try to match up the two; consequently there will be sufficient goods, sufficient income. The question of price/wage increases doesn't necessarily arise.
This is why it is important to look at the structure of our market which is more complicated.
The underlying phenomenon is to remember that companies exist for wealth creation and any money that is realised into the home market is on the strength of wealth creation. Consequently wealth, the power of reality, releases- displaced revenue into the market in the form of disposable income to be married up with the other commercial discharges, the depreciating reality or service. From the following trade entities:
(1) Export Manufacturer - wealth creating, releases disposable income into the home market; does not release reality/service into the market. Apparently more wealth in the market than goods. Inflationary?
(2) Home Manufacturer - wealth creating, releases disposable income into the home market - releases goods into the market; releases more goods than -income.
(3) Home Service Supplier - as above.
(4) Goods importer - releases goods into the economy but negligible revenue - because there is no wealth creating process supporting the existence of such goods, they tend towards inflation.
The above picture shows that the market gets bent to suit the needs of differing types of wealth creating process, which serves to endorse the view on market forces being the puppet of wealth. When you look at the model it becomes obvious that we are heavily dependent upon home manufacturing supporting the market and given, as there will be, drifts and trends in and out of one or the other of commercial enterprise, it will change the nature of true disposable income in the market to goods in the market. In the last 10 years we have drifted out of wealth creating manufacture into distribution and services; also we have many two-income families so on the one hand there is a drift toward wealth creating commerce that does not create goods and drift towards better goods which are higher prices and carry more profit. Secondly our lack of ability to create goods for the home market is offset by imports which are inflationary. So there is overall inflationary demand for depreciated reality which is demand based, i.e. we are not making enough goods, enough of the right goods, the demand is improving at the better end, hence apparent price increases, and imports to fulfil revenue; in addition to the above trend we are faced with credit supported income finding its way increasingly into the market, this endorsing inflation and mortgaging production.
So this only serves to show that real situations can look like and become inflationary. They are, however, depreciated existence and only a built-up reflection of added value, i.e. the product of share of profit unable to match up with goods, finding it necessary to import goods to fill a gap and tending towards price increases.
But it is important to emphasise that it is wealth creation for its own sake that is the fundamental cause. A build-up in wealth is accompanied by a build-up-in necessity to release revenue into the market and in order to stabilise society we are going to have to -learn how to cap wealth creation in such a way that there is healthy input of displaced revenue into the market, that this revenue is met where possible by home production and that the goods come up to meet the wealth, i.e. that we produce better with more human input coupled with a dispersal of wealth that is excess into other activities. Money caught up in the need to compound wealth is chasing scarce existence of reality and the greater reality has a depreciating nature the greater the chase, and the greater the devaluing effect on reality.
