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How Inflation is Socialised

How Inflation is Socialised
Written by Jon Gulson @jongulson
Posted 19 September 2017
Inflation used to be a problem because it eroded the real value of savings, reduced spending power and attacked living standards. Over the last three decades however inflation has trended downward across all major economies. So what does it mean for the future of money?

The Deflationary Impact of Technology

We have previously blogged on how traditional inflation has been resolved by technology accelerating knowledge. This is because automation and computerisation increase productivity while simultaneously reducing or removing the human element in manufacturing and services (so things are made cheaper and faster).

The Amazonisation of commerce has become a problem because it has created a reversal of Say’s Law. Put simply; where automation has replaced or reduced the need to pay the wages of human input, this inevitably dissipates demand for other goods and services.

The Pernicious Culture of Retrospection

This is why technology is often referred to as disruptive. For the beneficiaries of disruption, it increases profitability and competitive advantage. For those displaced, it creates uncertainty and fear. Nowhere is this displacement more prevalent than popular culture romanticizing and eulogizing the past. Trump’s MAGA campaign (Make America Great Again) is a prime example.

The Language of the Dollar

Where inflation was once a problem because there was too much of it, it is now a problem because of low growth. The decline in productive power, weakening economic performance and loss of collective confidence is reflected in a cynicism of new thinking and a premium placed on individual lifestyle choices which would have seemed risible just a decade or so ago.

The language of the dollar is becoming ever more conservative and reactionary, ignoring the reality of its own decline.

The Distributive Power of Cryptocurrency

Despite the problems of low growth and weak productivity described above, we live at a juncture of history where technology and science have delivered many life improving benefits.

We also live at a time where the innovations of conventional money appear to have plateaued. Which explains the gradual rise in excitement and anticipation surrounding financial technology and blockchain.

Just as technology has a deflationary impact, it is natural that cryptocurrencies have deflationary features. For example, the supply of Bitcoin is purposely designed to be fixed and reducing over time so that inflation eventually is totally eliminated.

The outcome will be cryptocurrency distributing the benefits of technology in a way centralised currencies such as the dollar never will.

And Say’s Law will be re-written for the digital world.
Written by Jon Gulson @jongulson
Posted 19 September 2017
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