Inflation is caused by too little capacity
pluralistic.net
pluralistic.net
Since everybody has beaten any excess capacity out of their systems, nobody is in danger from competitors, and everybody can raise prices.
What are you going to do? Switch to somebody else? They only have 10% excess capacity, at best, and will take years to spin up anything extra because nobody higher in the supply chain has any excess either. And, if you threaten us and piss us off, you'll be completely screwed as we'll drop you completely since there are other customers who would be happy could take our capacity. Your competitor may not be able to knife you, but your suppliers sure can.
And nobody is going to build capacity because that takes money immediately for an uncertain return in the future. See: industrial toilet paper and Covid shortages
Buckle up. The ride is gonna be bumpy.
For some reason people got this weird idea that the economy will store an infinite quantity of capital. They probably got this mistaken impression from the fact that cash has a guaranteed zero percent interest rate. But since actual capital (food counts as capital for example) spoils in the real world the amount of capital that was produced starts diverging from the amount of financial capital that grants you the right to buy physical capital and this is how you end up with this eternally creeping inflation but that also explains why in a properly managed economy, the inflation rate is expected to be very low around 2%.
I already mentioned that 2% inflation is inevitable in my other comment, even in a gold standard. The only difference is that a gold standard will cycle much faster through booms and busts for no reason whatsoever. So people will become desperate to mine more gold to hit that 2% target.
I honestly never understood why so many people want eternal dynasties at the expense of millions of other people. Money is a medium of exchange not an "investment" into the extortion of other people. Saving money beyond its storage capacity over the long term has no economic function as the capital it represents starts rotting or requiring maintenance while money itself does not. That divergence causes endless hoarding behaviour because people want to offload the costs of physical capital onto other people. The most common example is offloading the cost of avoiding starvation onto employees by firing them.
Saving money does not store anything, it just delegates the storage of value to other people. If an employer fires you and saves money in the process, your hunger doesn't disappear. If you die, the money they saved becomes worth less.
If those other people are already loaded up with massive amounts of storage obligations in the form of debt, they might refuse to store more. That is where cash comes in, tough luck, the interest rate now has an artificial price floor, you can't just charge the rich for the privilege of keeping their capital safe and in pristine condition. No, you must do it for free, whether you want it or not. The government will even make that decision for you by borrowing on your behalf.
Many people hold onto the dream of self-sufficiency: work, save money, buy your castle, hoard the remainder of your cash, and live out the rest your days carefree. But that dream is premised on everything else in the world remaining static.
Monetary inflation conflicts with that worldview at a very basic level. Many other forms of endemic change also cause conflict, like immigration, cultural mores, technology, etc. But inflation directly challenges the notion that you can protect yourself from change through wealth accumulation.
I think everybody clings to this fantasy--imperviousness to change, ability to secure security--to some degree, but some more than others.
Inflation under the gold standard was due to an increase in the money supply, be it through gold discovery, credit, fractional reserve lending, coinage debasement. You can directly see the impact of this during the gold rush.
By storing a hard monetary assets and deferring consumption and "hoarding" a monetary asset that has no other utility, you are not disenfranchising society of an wealth utilisation, and you are improving the purchasing power of all others that utilise the currency (in effect causing deflation). It's an odd position to have that you believe that having the money that you saving losing purchasing power is a desirable trait.