Suppose there were a world with stable prices in which a cup of coffee costs the same next year as it costs today. Would that be a bad world, a world without a future?

Your father and grandfather told you to save money for a rainy day. To make sure that in the future you could use your piggy bank to buy the bike you always wanted. And so you did. You believed the things your father and grandfather had told you.

You knew that your mother was keeping some money for unexpected expenses. You knew that saving couldn’t be bad.

They were wrong.

In the world according to Frankfurter Mario, saving should be punished by a least two per cent per year. When your father bought a life insurance policy in order to make sure you could study and your mother had some put aside to bury him, your father thought about the future. He made provisions for an event he couldn’t control. He was a responsible man.

In a world of stable prices, a world without inflation, employers would still face price fluctuations due to demand and supply. Fixed and variable costs can be projected. They would, however, not be hostage to unnatural growth by devaluation.

The opportunity to create new products and services would not be compromised. Inventions have never been restricted or created by inflation.

Your cup of coffee and that bike – while you have been stuffing that piggy bank to the rim – will be available thanks to the savings advised by your father. Your house improvement and or maintenance could be planned. You would not be confronted with the insecurity of an instable economy of “inflation growth”.

If bankers set a target of two per cent inflation, and the national economy grew by two per cent, the national economy didn’t actually grow by one cent.

Economic growth as predicted by the World Bank for “Old Europe” for 2016 is somewhere between 1.5 and two per cent. But that’s no real growth at all. That’s make believe.

Growth means something got larger by internal energy. If an employer sells exactly the same number of bikes this year as last year, his company didn’t grow. That’s not bad: it means he has a stable company and his employees have a secure job. Their salaries can be paid based on the predictable turnover. His company could grow by producing a new type of bike (say an electrical one) which would create additional turnover and employment. He would have to invest in new technology, additional premises, hire new employees. That would be good, natural growth. If a farmer grows onions his turnover next year would be based on the number he could grow on the land area available. His insecurity is the weather.

Do not be afraid of zero inflation... It makes your savings worthwhile

Our bike company also has insecurity about the weather, but to a lesser degree than the onion farmer.

Two different and competing systems are on offer to mitigate for that insecurity. The onion farmer could buy “weather-insurance”, a mutual system in which a lot of people share the weather-risk, based on a database of the past. Or the onion farmer could go to the mercantile exchange and sell his harvest on a future day. That’s betting; that’s speculation. The onion-soup factory could buy up the harvest and make sure we all have onion soup next year. The onion-soup factory would have predictable prices for the coming year. Both farmer and factory have a pertinent and essential interest in stability and sustainability. But prices would be set by the market of demand and supply – not by inflation.

Governments and bankers don’t save money. Both believe in lending and spending. If you started that piggybank 10 years ago and inflation diminished your savings by two per cent a year, you would have roughly 78 per cent of what you thought to have. But if you hadn’t saved at all, and borrowed the money from your father or the local bank, you wouldn’t have to pay back 100 per cent at the end of the 10 years – but only 78 per cent. Governments spend the money of future generations because the spenders will be retired when a rainy “pay day” comes calling. They know that the money they got from the market will have less purchasing power on some sunny day. Even better: they will never pay back at all. They will issue a “roll-over” bond and postpone national debt till our children are replaced by our grandchildren and they be replaced with our grand-grand-children and so on.

But it isn’t fair, isn’t it!

Milton Friedman agreed to that and proposed the Friedman Rule: a monetary policy rule which essentially advocated setting the nominal interest rate at zero.

Friedman was the main proponent of the monetarist school of economics. He maintained that there was a close and stable association between inflation and the money supply, mainly that inflation could be avoided with proper regulation of the monetary bases growth rate.

He famously used the analogy of “dropping money out of a helicopter” in order to avoid dealing with money injection mechanisms and other factors that would overcomplicate his models.

Inflation is a source of tax revenue for the government and if inflation were reduced other taxes would have to be increased in order to replace the lost revenue.

If a zero-sum budget were to be implemented, government would have to economise in such a way that stable taxes and expenditure would balance.

Do not forget: taxation is a system used by governments to extract money from people by the use of law. Taxation is a reflection of the values of those in political power; it is not related to the purpose of good government. Taxation rates are based on the limit to prevent revolution!

So do not be afraid of zero inflation, it might be good for us. It makes your savings worthwhile, even intellectually honest, since your debt will be not deflated too. Although some economists argue against zero inflation, they base their studies on the premises of the clairvoyant. If our cup of coffee cost the same next year and our son could buy that bike he has been saving for, I would like to meet the economist who can prove this to be bad.

Inflation is a redistribution policy which awards those in debt and punishes those who save and our future generation.

Let’s stop Super Mario!

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