Chinese Inflation Is More Than China And More Than Inflation

Inflation is a complicated subject that has been devalued as if it were simply some variable in an equation. It starts with the very premise itself, as if an index of a bucket of consumer prices equals a comprehensive review of the subject. As Irving Fisher realized more than a century ago, money can go into places beyond any CPI’s reach. Not all “inflation” is therefore equal, though orthodox monetary theory has hardened rules for it. Inflation in consumer prices is always good but only so long as it isn’t “too much” where central bankers and economists get to define that limitation without actual economic input.

Deflation is always bad and monetary, on the other hand, even though there is a tremendous difference between falling prices due to dramatic overcapacity and prices coming down in the virtuous cycle of innovation and capital efficiency. Thus, capitalism might provide lower “inflation” through technology that central banks then turn into the “need” for more “accommodation” yielding but great distortion.

In the real economy on the consumer side, monetary-driven inflation is never a positive while price increases due to supply imbalances (bottlenecks or artificial restrictions) should not be confused into some holistic monetary policy practice. In terms of overarching theory, consumer prices that might be rising as wages rise is not something to be decried and stamped out. Only orthodox economics would seek to limit or extinguish an economy delivering rapidly rising wages. Thus, the whole orthodox philosophical system is set to against large wage gains and the beneficial work of innovation and technology; i.e., prosperity.

That is because economic theory makes no distinctions; everything is treated as perfect substitutes. When consumer prices, for example, rise due to rising wages that is altogether a distinct circumstance than when consumer prices rise due to expanding money through credit. The former denotes the healthy monetary circulation of the basic economy through earned income and labor exchange; the latter is taken as the former when it is instead an artificial intrusion that leads to only artificial alterations. Central banks registering no awareness of these differences presume that “their” inflation is a substitute for the healthy economy and thus seek their monetary entrance as if inflation was a singular concept – economic agents are assumed too stupid to notice the difference.