Posner on Inflation

Richard Posner, usually an unlikely candidate for my quotables list, has some sensible things to say about inflation:

I need to be more precise about inflation, and in particular to avoid an implication that zero inflation is the summum bonum that the government should be striving to achieve.

The whole article is short and clear, and I recommend it, but the key points are that inflation can be bad, but deflation is worse. Some inflation can be a potent stimulator when you are in a depression.

Inflation penalizes savers, but rewards debtors. Large scale inflation is highly destructive to economic planning and tends to kill the lending that fuels economic growth, but deflation encourages everybody to put their money under their matresses.

One point that he doesn't make: inflation, deflation, and control of the money supply in general tends to transfer wealth from one group to another. Deflationary policies like those run in parts of the nineteenth century tend to transfer money from debtors to lender, from farmers and small businessmen, for example, to bankers and other lenders (the railroad, the company store, etc.)

It is no accident that a classic theme of the old time western movie pitted the virtuous rancher about to lose his ranch to the evil banker. Deflation made his goods (cattle) worth less, and made it impossible to pay back his loan. Tools like the gold standard were manipulated by the wealthy controllers of government to impoverish the small businessman and sieze his wealth.