Inflation is recognized along with the employment rate as the two most fundamental par s s m e am the macroeconomic structure. The Keynesian model, completely escaping the microeconomic commitments of classical and neoclassical economics, proposed a completely different way of reading economic reality, abandoning the place and looking at the whole. Indeed, he has suffered and still has a huge criticism precisely because he is completely devoid of a micro-economic model. The result of this selection, as in full development first formulated with the General Theory of Keys, quantified the economic analysis in the method of reading the influence of employment within the production circuit. The primary (in display order and in theoretical terms perhaps) concluded Keynes, relates to the definition of active demand (Effective demand ). The questing of demand as a measurable component, caused by employed agents and not by the whole population. This so elegant and delicate separation essentially made the whole Kaynesian proposition. This is the theoretical tool and propulsion vehicle of the entire General Theory. Essentially Keynes, coming face to face with the problems that arise in everyday economic activity, chooses opponent: considers that unemployment is the source of evils, as its presence deprives the system of productive resources, causes price imbalances, and turbulence in liquidity, as savings are reduced and bank deposits are shrinking by the proportion of deposits from the working population.
Besides, let’s do it differently: during the interwar period, with the Economic Crisis threatening the whole of the Western World – and eventually swallowing through its Integration an important part – the “social” footprint of the solution sought was much more important than ” economical”. The drug of fiscal expansion seemed the most effective and effective. At the same time, International Relations including the possibility of martial settlements in their implementation protocol provided for and favored huge defense spending. Inflationary overheating of the economy could be accepted without anyone realizing it.
You do ; In Germany at that time, inflation was astonishing, politically, economically and socially wiping out the country. The war compensations for the ’18 defeat, except that they could not be covered, rocked all the structures of the social fabric, leaving plenty of vital space to a fatal end-to-end conflict, with the ultimate triumphant of National Socialism. The mist of the German labyrinthian financial problem was inflation, not unemployment. The complete degradation of the productive fabric was caused by the collapse of the national currency, as a result of an uncontrollable and frantic inflationary race. The impression that it has historically been recorded that the endless phoning of the unemployed has manned and embodied the Hitler vision is true. But the reason why all this population was out of active economy was the root of the problem. And this reason was inflation.
A simple rule of inflation states that the phenomenon is related to the measurement of the general price level based on a specific time reference. Raising prices means inflation. Decrease equals deflation. But the issue is qualitative: it is a monetary or financial problem. Is it the excess money supply that generates inflation or the values are inflated by external interventions such as a government decision to increase the general salary level or to stimulate public investment?
The charm of Kaynesian economy was entirely based on the view that inflation is a non-monetary event. This is a policy creation in the strict sense of the term. Interference in sizes and parameters involving balance automation, such as salary levels, is defined by extra-economic criteria. These leverage produces social effects (eg, labor peace), but in the medium and long term they lead to distortions as they merely pass the costs to future (and unknown) time. Keynesian economics succeeded in the 1950s and 1960s as the ruins of the war were smoked . But when demand has fallen and the economy in general overheated, it has not been easy to give a simple interpretation. At the same time, the “empirical verification” of Keynesian reason , that inflation and unemployment are counterproductive forces (the equally charming but so simplistic logical Phillips curve ), has also failed . The stagnating inflation of the early 1970s (the coexistence of inflation and unemployment) gave the final blow .
Summing up here: inflation is a monetary phenomenon. And conceptually, it could not be different. Budget discipline can only generate inflation, despite the (exceptionally) short-term benefits it can bring. The redeployment of fiscal architecture parameters can only be achieved under strict conditions: Do not generate deficits, serve specific goals, increase borrowing, schedule and road map. In all other cases, temporary benefits are discounted and significant future liabilities are recorded. The worst of all is that inflation as a result of generalized budget intervention produces unemployment with structural features, as the imbalance in money value and return on capital in the medium and long term makes productive investments increasingly inefficient.
In the current economic climate, unemployment is brutal and inflationary figures are negative. Keys and Phillips were right?
I think not. Inflation is negative, but this has come from a fiscal contraction. The money supply, borrowed from borrowing rates, is at a normal level. Essentially, the system corrects the old distortion with a new one, as if we were moving ahead with development measures while overheating the economy, after a few years again, the same problems would be faced. Unemployment would fall, but the lost value of the inflationary euro would lead investors in countries where return on capital would offset the lost value of their money. Again reduced productivity would be matched by increased unemployment. Moreover, inflationary currency means an increase in lending rates and hence more expensive liquidity. Finally, the building complements the necessary increased tax rates.
The economy of the 1930s was a black and white simplistic process of an extremely closed nature. The people of the 1930s were strangers to us and pursued totally different things. Beyond what inflation and unemployment are, besides how this current Crisis will become past, the basic tool to provide the solution is this: It is not possible to solve the problems of the present with the logic of the past. Maybe if he lived today, he would have been ambassador. Why, no matter what everyone agrees with the writings and words of the great British economist, it is certain that above all the spirit of his teaching was extremely practical. Not at all romantic or sensitive. Are those who invoke it, just have not read it?