Inflation generally refers to the devaluation of banknotes caused by the amount of banknotes issued exceeding the actual demand for currency in commodity circulation. The phenomenon of continuous rise in prices. Its essence is that the total social demand is greater than the total social supply [ Supply is far less than demand].
Inflation in modern economics means an increase in the overall price level. General inflation is the decline in the market value or purchasing power of currency. Currency depreciation is the relative currency value between two economies. Decrease. The former is used to describe the national currency value, while the latter is used to describe the added value in the international market. The correlation between the two is one of the controversies in economics.
The law of paper currency circulation shows that. The amount of circulation cannot exceed the amount of gold and silver currency that it symbolically represents. Once this amount is exceeded, paper money will depreciate and prices will rise. Inflation will occur. Inflation will only occur under the conditions of paper money circulation. In gold This phenomenon will not occur under the conditions of silver currency circulation. Because gold and silver currency itself has value and functions as a storage means, it can spontaneously adjust the amount of currency in circulation to make it compatible with the amount of currency required for commodity circulation. Under the conditions of paper currency circulation, because paper money itself has no value, it is only a symbol representing gold and silver currency and cannot be used as a storage method. Therefore, if the circulation of paper money exceeds the amount required for commodity circulation, it will depreciate.< /p>
For example: the amount of gold and silver currency required for commodity circulation remains unchanged. However, the circulation of banknotes exceeds twice the amount of gold and silver currency. A unit of banknotes can only represent 1/2 of the value of a unit of gold and silver currency. .In this case, if paper money is used to measure prices, prices will have doubled. This is commonly referred to as currency devaluation. At this time, the amount of paper money in circulation has increased compared to the amount of gold and silver currency required in circulation. Double. This is inflation. In macroeconomics, inflation mainly refers to the general increase in prices and wages.
The opposite of inflation is deflation. No inflation or very low inflation. Inflation is called stable prices.
(In some cases, the term inflation means increasing the money supply. This sometimes causes price increases. Some (Austrian school) scholars still use the term inflation The word describes this situation, rather than the price increase itself. Therefore, some observers call the situation in the United States in the 1920s "inflation". Even though prices did not rise at all at that time, as described below, unless otherwise specified, [inflation] The word "inflation" means a general rise in prices.)
Inflation refers to the phenomenon of comprehensive and sustained rising prices in economic operations. The amount of banknotes issued exceeds the actual demand for currency in circulation. Quantity is one of the main causes of inflation.
[Edit this paragraph] Various explanations
Different schools of thought have different theories on the causes of inflation.
1. [Explanation of Monetarist]
The most well-known and direct theory of inflation is that inflation is caused by the money supply rate being higher than the growth of economic scale. This theory advocates comparing GDP It is measured by the deflator and money supply growth, and the central bank sets interest rates to maintain the quantity of money. This view is different from the Austrian school below in that it focuses on the quantity of money rather than its substance. Under the framework of monetaristism. The aggregation of money is the key point.
The quantity theory of money. Simply put, it means that the total amount of money consumed by the economy depends on the total amount of existing money. The following formula was created from this theory: p is the price level of general consumer goods. .dc is the total demand for consumer goods. And sc is the total supply of consumer goods.
The concept behind the formula is: the total supply of consumer goods relative to the total demand for consumer goods decreases. Or the total demand for consumer goods relative to the total supply of consumer goods When the quantity of consumer goods rises relatively, the prices of general consumer goods will increase accordingly. Based on the view that total expenditure is mainly based on the total amount of existing money, economists use the total amount of money to calculate the total demand for consumer goods. Therefore, they conclude that total expenditure and the total demand for consumer goods As the total amount of money increases, scholars who believe in the quantity theory of money also believe that the only reason for rising prices is economic growth (which means that the total supply of consumer goods is increasing). Therefore, the central bank uses monetary policy to increase the total amount of existing money.< /p>
From this point of view, the most fundamental cause of inflation is that the money supply exceeds the demand. So [inflation is a monetary phenomenon that will definitely happen everywhere." Friedman said. Meaning The control of inflation depends on monetary and fiscal restrictions. The government cannot make borrowing
It is too easy. It cannot over-borrow itself. This view focuses on the central government budget deficit and interest rates, as well as economic productivity. That is, inflation (cost-pull inflation) driven by production costs (aggregate supply).
2. [Explanation of New Keynesianism]
(neo-keynesian) According to New Keynesianism, there are three main forms of inflation. It is what Robert J. Gordon said [triangular model] Part:
·Demand-pull inflation--inflation occurs when high demand and low unemployment generated by GDP. Also known as Phillips curve inflation.
< p>·Cost-push inflation -- now called supply shock inflation. It occurs when oil prices suddenly increase.·Inherent inflation (built-in inflation) -in inflation)-- Caused by reasonable expectations. Usually related to the price/wage spiral. Workers hope to continue to increase wages. The costs are passed on to product costs and prices, forming a vicious circle. Inherent inflationary response Events that have occurred are considered residual inflation, also known as "inertial inflation" or even "structural inflation".
These three types of inflation can be combined to explain the current inflation at any time. Inflation rate. However, most of the time the first two types of inflation (and their actual inflation rates) will affect the size of inherent inflation: persistent high (or low) inflation drives up (or decreases) inherent inflation. type inflation.
There are two basic elements in the triangular model: movement along the Phillips curve. For example, low unemployment stimulates higher inflation, and shifting its curve. For example, higher or lower inflation has a negative impact on the economy. The impact of the unemployment rate.
3. [Phillips Curve Inflation Theory]
(phillips curve) (or demand side): The demand-driven theory mainly focuses on money supply: currency Inflation can be related to the amount of money in circulation and the economy's supply (its potential output). This is particularly true when a government (perhaps during a foreign war or civil war) prints too much money to cause a financial crisis. This can sometimes lead to hyperinflation, which causes prices to rise. Skyrocketing (or to the extent of doubling every month).
The money supply also plays a major role in moderate inflation. But its importance is controversial. Monetarist economists believe that it is powerful Connection, on the contrary. Keynesian economists emphasize the role of overall demand in it. Money supply is only the decisive factor in overall demand.
The basic concept of Keynesian interpretation is the relationship between inflation and unemployment The relationship between. It is called the Phillips curve model. This model trades off between price stability and the unemployment rate, so it is to minimize the unemployment rate. A certain degree of inflation can be allowed. The Phillips curve model is extremely It is a good description of the experience of the United States in the 1960s, but it is not sufficient to explain the combination of rising inflation and economic stagnation that it encountered in 1970. Today, the Phillips curve is used to relate the relationship between wage growth and general inflation. Non-unemployment rate and inflation rate.
·Shift of the Phillips Curve
Because supply shocks and inflation have become fixed factors in economic activities. The contemporary overall economy uses the `displacement' process The Phillips curve (and the trade-off balance between price stability and unemployment) is used to describe inflation. Supply shock refers to the oil price shock in 1970. And inherent inflation refers to the price/wage cycle and inflation expectations. Represents the tolerance of inflation under normal economic conditions. Therefore, the Phillips Curve represents only demand-pull inflation in a triangular pattern.
Another Keynesian perspective is potential output (sometimes called gross domestic product) )--that is, the GDP level of the economy under the condition of reaching maximum productivity--is a habitual and inherent limit. This output standard corresponds to nairu-intrinsic unemployment rate. Natural unemployment rate or full-time unemployment rate. In Under this framework, the inherent inflation rate is intrinsically determined by the amount of labor in the economy:
GDP exceeds its potential level (and the unemployment rate is low
When nairu), this theory points out that when other conditions are equal, inflation will increase as suppliers increase prices, and inherent inflation will worsen. This will further cause the Phillips curve to swing towards high inflation and high unemployment. Stagflation. This type of "accelerating inflation" was seen in the United States in the 1960s, when the cost of the Vietnam War (offset by small tax increases) kept the unemployment rate below 4 percent for several years.
GDP is lower than its potential level (and the unemployment rate is higher than nairu). When other conditions are equal, inflation decreases as suppliers attempt to lower prices, allowing the market to absorb excess quantities, and underestimating inherent inflation, that is, preventing inflation. It will cause the Phillips curve to swing in the desired direction of low inflation and low unemployment. Preventing inflation was seen in the United States in the 1980s. The anti-inflation measures taken by Paul Volcker, chairman of the Federal Reserve at the time, brought about several years of high unemployment. It was as high as 10% in two years.
When GDP is equal to its potential level (and the unemployment rate is also equal to nairu), as long as there is no supply shock, the inflation rate will remain unchanged. In the long run, most New Keynesian economists regard the Phillips curve as vertical. That is to say, if the inflation rate is high enough to overwhelm the unemployment rate, the unemployment rate is the premise. And it is equal to nairu.
However, there are flaws in using this theory as a basis for policy formulation. The amount of potential output (and nairu) is usually unknown and will change over time. In addition, the occurrence of the inflation rate is not symmetrical. The rate of increase is slower than that of nairu. What's worse, it tends to change with policies. For example, during Prime Minister Thatcher's administration, the unemployed found themselves in structural unemployment. That is, they were unable to find suitable employment opportunities within the British economy. At that time, High unemployment in the UK may have increased the nairu (and lowered the potential). When an economy avoids crossing the threshold of high inflation, an increase in structural unemployment implies that only a small pool of manpower will find employment in the nairu.< /p>
If it is assumed that both nairu and potential output are unique and quickly achieved, then most non-Keynesian inflation theories can be understood as included in the new Keynesian perspective. When "supply When the supply side is fixed, inflation depends on aggregate demand. The fixed supply side also implies that the spending of public and private institutions must conflict with each other. Therefore, the government's deficit spending will have a crowding out effect on the private sector, but will have no impact on employment levels. .In other words, capital supply and financial policy are the only ones that can affect inflation.
4. [Supply Side Theory]
The theory of supply side economics assumes that inflation must be supplied by capital. Caused by excess and insufficient demand for funds. For these two factors, the amount of funds is purely the subject matter. Therefore, the inflation that occurred in Europe during the Black Death epidemic in the Middle Ages can be regarded as caused by a decrease in demand for funds. The inflation in the 1970s can be attributed to the excess supply of funds that occurred after the United States left the gold standard established by the Bretton Woods system. The supply school assumes that when the supply of funds and demand increase at the same time, it will not lead to inflation.
An element elaborated by the theory of supply-side economics. It calls the economic expansion led by low tax burden in the United States in the 1980s a means to end high inflation. The argument is that economic expansion increases the demand for basic funds. And this This approach offsets the impact of inflation. Economic expansion can be regarded as regularly bringing about high demand for funds, and other conditions are equivalent to increasing the amount of funds. In the international currency market, this kind of policy is unquestionable. Supply-side economics theory It is advocated that economic expansion not only improves the domestic evaluation of funds, but also improves the international evaluation.
5. [The nature of inflation]
For a country's economy, there are three Two issues are the most important: the first is economic growth, the second is inflation, and the third is unemployment rate. Economic growth is what big countries are most concerned about, while inflation is accompanied by many developing countries. This article mainly discusses the essential issue of inflation.
Here I directly put forward what I think is the real reason for the formation of inflation (CPI): [The real reason for inflation is capital’s requirement for the equalization of profit rates. In other words: the same unit of capital requires equal Return on investment. That is, undifferentiated capital. However, in reality, undifferentiated capital cannot exist. This is often affected by the difficulty of capital entering a trade or industry. Therefore, the difficulty of capital entering a trade or industry results in the equalization of profits.
This objectively existing differential profit rate between industries or industries can achieve a certain equilibrium under complete market conditions. Once this equilibrium is broken, it will widen the profit rate ratio between industries or industries, thus resulting in Inflation. The difficulty of capital entering a trade or industry is affected by factors such as interest rates, division of labor, industry productivity, investment scale, degree of secrecy of science and technology, human resources, brand, reputation, patents, standards, availability of raw materials and other factors.
Inflation is an inherent attribute of the capitalist economy. In real life, the promotion of innovation, fluctuations in market demand, labor bargaining, etc. will cause differences in capital profit rates, and then prices will be distorted. The reason why this happens In this way, the most important thing is that the promotion of science and technology makes investors feel that there is a difference in investment. The profit rate should also be different, so inflation usually occurs when the interest rate decreases and the currency supply is sufficient. At this time, those who have sufficient funds Will quickly flow from industries with low profit margins to industries with high profit margins, that is, the more working capital there is, the more urgent the demand for the average profit rate of the industry. In the period of high interest rates, funds are in short supply, and various industries have requirements for the equalization of profit margins. Not high. Therefore, the profit margin difference between industries is high. But if the relative profit margins of various industries are fully distorted, inflation may also occur under high interest rates. The CPI index is an inaccurate concept because it cannot include All commodities. In fact, commodities not included are often more instructive. For example, innovative products are sold at high prices when they enter the market and account for a small proportion of GDP, while other products that will be eliminated are priced at low prices. They account for a small proportion of GDP. The proportion is also low. Statistical indicators often ignore it.
Breaking the balance is often determined by the variability of cost, demand and innovation. These three are not determined by the enterprise in most cases. For example, in costs: raw materials and human capital are determined externally, and demand is determined by customers. In periods of economic expansion and recession, demand fluctuates greatly, and innovation often changes productivity. Therefore, innovation is determined by the relativity of innovation results between industries. And there is a lot of chance.
From the perspective of an enterprise or industry, we should note that enterprise investment has a long-term goal, which determines its asset allocation, such as fixed asset investment. This determines the profits of the enterprise. When making decisions, the pursuit of maximizing profits in the near term, the industry is composed of many companies, and the country is composed of many industries. Therefore, companies do not organize production based on the average profit rate. This is another reason. Investment directly changes the industry. .The profit rate between enterprises. Because investment is an individual (unit) behavior after all. Since investment is affected by the decision-making body, the environment, resources and psychological expectations, the differentiation of capital always exists. Sometimes it is very large. Therefore, the differences between industries and enterprises It is also an objective existence that the profit rate is distorted. Inflation and the requirement of equalization of capital profit rate are effective ways to naturally adjust this unfair phenomenon. This is also suitable for adjustment in the economic cycle. For example, during the economic expansion period, the profit rate is seriously distorted. Distortion, in the period of recession, the profit rate tends to equalize.
However, investment can also comply with the principle of capital indifference. For example, the government's fiscal policy and monetary policy. In addition to achieving the average capital profit through fiscal expenditure, fiscal policy In addition, the profit margins of various industries can also be controlled through prices, and monetary policy is reflected in interest rates and exchange rate controls. For example, increasing bank reserves. From this, we can see that there is a relationship between inflation and interest rates.
< p> If enterprises maintain appropriate profit margins, increase labor expenditure (wages) appropriately, and maintain appropriate consumer spending, there is no doubt that the increase in productivity or the increase in producible products brought about by technological innovation will make the capital economy grow rapidly. Individuals can The wealth at its disposal is more. But this can only be an ideal, as mentioned before. Enterprises do not determine profit margins (accumulation) based on social interests. Instead, they pursue self-maximization. This determines that capital must lower the value of labor (wages). ) nature. Therefore, the growth of capital economy is slow and the economic cycle is obvious. To solve this contradiction, it must be guided by the undifferentiated capital from a systemic perspective. In line with the balanced relationship between consumption and accumulation, the purpose of economic development is scientific and technological innovation. Only by formulating profit rate policies and supervision suitable for various industries and enterprises can we resolve the various defects of the capital economy.In reality, there are obvious differences in the profit rates of various industries. This natural difference can automatically Achieve a certain equilibrium ratio. That is, the profit equalization step mentioned above. For example, oil/IT=4/5, industry/agriculture=4/3, etc. This ratio can automatically form a business habitual profit rate. Reasonable ratio. Thus forming a good image among enterprises, industries, customers and society.
It becomes the so-called reasonable profit rate. We can call this equilibrium the capital differential equilibrium in the state of nature. That is, the natural equalization between industries. However, this equilibrium can only be a short-term equilibrium under capitalist economic conditions. The fundamental reasons are: (1) The development of the financial system promotes investment to break the original economic structure. (2) Science and technology bring about improvements in productivity, giving people more time at their disposal. Purchases are no longer necessary. As a result, consumers are more imaginative and it becomes easier to change purchasing behavior through psychological activities. Impulsive and irrational purchases exist objectively, which makes purchases highly trendy, causing the products provided by some industries to expand or expand in a short period of time. Strong contraction. (3) Non-programming of scientific and technological innovation. The impact on the market structure affects the economy like a wave. (4) Due to the different profit margins, different cost structures and different market sizes of each industry, profit accumulation The speed and quantity, the speed and method of asset replenishment, the existence of the market and the speed of replacement are all different. This often has a significant impact on the time, scale and speed of new investment.
The average profit of a single industry There is a degree of differentiation. This degree depends on: ① The ideal return on investment in the industry. For example, industry A is 7%. ② The ratio of the average social profit rate. For example, the profit rate of industry A is 7%. The average social profit rate is 10%. The ratio of industry A to the average social profit rate fluctuates between [0.6.1]. The more common situation is that supply exceeds demand or oversupply. For example, in 2007, domestic pork prices generally rose. Ostensibly due to a reduction in pork supply. The essential reasons are: First, rising prices increase the cost of pork. Second, pork profits decrease. Many pig farmers do not raise animals in batches, so they do not gain the advantage of scale. Instead of raising pigs, they do other jobs with higher income. When the price of pork rises, so does the price of chicken, beef, and mutton. Because they are all lower than the [social average" profit rate to varying degrees. Inflation is an important way to adjust the uneven distribution of profit rates. It is also a natural way to adjust unreasonable investment allocation. Means, because of information asymmetry, subjectivity of investment, exchange rate, input, output, demand, etc., there are always adaptive adjustments in the economic environment.
The impact of interest rates. Corporate investors are based on relativity Financing is based on costs. If monetary policy uses interest rate cuts to promote investment, then the part of the investment used for technological innovation will be obviously insufficient. This is because of the impact of comparable profits. For example, the profit margins of original industries are generally low. Monetary policy It can make decision makers think that continued investment in the original industry will lead to a decline in the profit rate of the entire industry, which can make up for the interest costs. And due to the "trap" of economies of scale, decision makers are overly optimistic, which will further reduce the profit rate of the industry. In this case, innovation It is better to replicate investment under the original conditions. This will increase inflation and reduce the unemployment rate.