Deflation: Transferring Wealth To Rentiers

First published on 14 April 2015 by the New Left Project

Deflation, as we have already seen, involves a transference of wealth from the rest of the community to the rentier class and to all holders of titles to money; just as inflation involves the opposite.  In particular it involves a transference from all borrowers, that is to say from traders, manufacturers, and farmers, to lenders, from the active to the inactive.

John Maynard Keynes in A Tract on Monetary Reform (1923)

For more than three decades economic policy-making in western economies has been dominated by financial interests – those of bankers, creditors/moneylenders, investors and financiers.  Their interests have been eagerly supported by most of the mainstream economics profession (including private, academic and official economists) in a variety of helpful ways.  Perhaps the most helpful was the tendency of economists to look away.

Most economists have very little understanding of money and credit and of how the banking system operates.  Hard though this is to believe, classical economic theory neglects the role of money, debt and banks in the economic system.  Instead orthodox economists theorise as if money is neutral, simply a ‘veil’ over activity in the real economy, as if changes in the stock of money have no impact on wider economic activity. Continue reading… ›