As Riccardo Canaletti has already highlighted in these columns, the result obtained by Javier MileiThat in Argentina he managed to bring down inflation which only a year ago was at very high levels. This is not simply an economic success, however, since the increase in prices resulting from the creation of money produces devastation from various points of view. When there is inflation, in fact, money stops functioning as a “numerary”.
If a currency helps us to measure this or that good and service on an economic level, in the case of inflation it is as if we had a yardstick of changing dimensions; and this hinders productive life in various ways. As if that were not enough, in the presence of inflation everyone is less motivated to savesince its deposits are eroded over time. However, a dynamic economy is unimaginable without the capital needed for investment. Ultimately, the accumulation of financial resources is “deferred consumption”: one gives up spending something today in view of significant expenses later in time, as when an employee puts money aside in view of starting his own business. For this to happen, however, money must not be consumed by the simple passing of days.
Inflation is also a form of tax, albeit hidden and never discussed in parliamentary chambers. When the central bank multiplies the money in circulation and consequently my current account dwindles (the nominal values do not change, but the purchasing power does), all this happens because someone takes advantage of it. Ultimately, as Richard Cantillon explained more than two centuries ago, the first consumers of the new money have a good currency at their disposal, while the last have a money that has lost its strength, because many have now perceived that the quantity of money has increased . Generally the former are those who are closest to power and the latter are those who are further away. In addition to this, inflation tends to multiply social tensions. Many will remember the labor conflicts in Italy in the seventies and then one of the causes was the increase in prices. In a phase marked by inflation, no one can accept that their salary will always remain the same: hence the growing conflict. And the same can be said for rental payments and other forms of contracts.
Ultimately, a currency that loses value encourages certain behaviors and disrupts social relationships. Even in Italy of today, after all, inflation is rewarding the indebted (who will have to return depreciated capital) just as it penalizes savers, so that cicadas multiply to the detriment of ants. However, it is not on these bases that a society can grow. Precisely for this reason the economist Wilhelm Röpke spoke of inflation as a moral and spiritual disease; and for the same reason Milei is right to fight it with such force.
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