The Paradox Of Inflation/Deflation

QUESTION: 

Martin

You have really added dimensions to my thinking. Thank you very much.

One thing that continues to puzzle me is how empire’s die and inflation/deflation.

I get the part about the deflationary aspects of killing the economy via regulation and taxation. It is right in front of us every day. I get the part about that will not allow hyperinflation ala Germany and Zimbabwe.

What I do not get is how you can debase the currency such as you show in various Roman currency charts and not have significant levels of inflation [to me that is 10%+ per year]. If you debase the currency does not the person using that currency suffer a wealth reduction in their capital and therefore require more of the same currency to buy the same amount of goods [inflation?]? Seems like ‘stagflation’ at best.

Thanks for your continued help.

H

ANSWER: We are all victims of how we were taught to think in a linear fashion. It is a difficult thing to let go of this archaic thinking process and many people simply cannot make that step forward to see the dynamic world that exists around them. They will forever remain captive of their linear world trapped in a paradox they cannot escape. Those linear people tend to be people who gravitate toward government. If you grasp what I am talking about no doubt you are nearly there or you would not read this blog since it is not for the fainthearted nor the linear thinker.

What was written about Winston Churchill in the Last Lion is on point. Winston Churchill’s teacher, Davidson, had conceded that Winston was quite remarkable and intelligent. His grasp of history was outstanding. However, Winston was still considered to be a hopeless pupil. “It occurred to no one that the fault might lie, not in the boy, but in the school. Samuel Butler defined genius as “a supreme capacity for getting its possessors into trouble of all kinds,” and it is ironic that geniuses are likeliest to be misunderstood in classrooms. Studies at the University of Chicago and the University of Minnesota have found that teachers smile on children with high IQs and frown upon those with creative minds. Intelligent but uncreative students accept conformity, never rebel, and complete their assignments with dispatch and to perfection. The creative child, on the other hand, is manipulative, imaginative, and intuitive. He is likely to harass the teacher. He is regarded as wild, naughty, silly, undependable, lacking in seriousness or even promise. His behavior is distracting; he doesn’t seem to be trying; he gives unique answers to banal questions, touching off laughter among the other children. E. Paul Torrance of Minnesota found that 70 percent of pupils rated high in creativity were rejected by teachers picking a special class for the intellectually gifted. The Goertzels concluded that a Stanford study of genius, under which teachers selected bright children, would have excluded Churchill, Edison, Picasso, and Mark Twain.” (id/pg 158-159) 

This is why our thinking process is so archaic. Schools want order – not to be challenged. They are the teachers, not the students. The best and the brightest typically leave school or graduate to have the piece of paper and pursue a field in which they never studied. Schools want linear thinking – not dynamic. This is our greatest curse for to advance, you have to think out of the box. They ridiculed Einstein. They accepted his ideas only when forced to do so.

In economics, we are plagued by one-dimensional theories that lead nowhere and are constantly proven to be wrong. Inflation is not a single one-dimensional field. It is driven by various causes. The central key component is DEMAND for here we have a rather binary stimulant that produces important different effects.