Keeping inflation under control isn't just something done to protect "wealthy bankers". The stability of the financial system as a whole is predicated upon the fact that money that I earn today will be worth something tomorrow.
The stability of the financial system as a whole is predicated upon the fact that money that I earn today will be worth something tomorrow.
The main purpose of currency is not the eternal accumulation of wealth. It is for liquidity: making bartering easier. If you want long-term stability, you can invest in gold or bonds.
The reason why the US has planned inflation is to maintain liquidity when productivity rises or currency becomes horded. Economists such as Bernanke have learned from the Great Depression that rising deflation with the same productivity results in spiraling unemployment:
...a town full of shoe factories that closed during the Depression, leaving the community so poor that its children went barefoot. "I kept asking, Why didn't they just open the factories and make the kids shoes?"
The reason is because companies know that consumers do not have money to spend so they fire people to preserve their appreciating currency. By doing nothing, these companies gain wealth while children walk without shoes.
From a purely capitalist view, these companies have the right to do so. But would you really still hold that belief if all the farms shut down in this manner?
If you don't inflate the currency to a certain level when productivity increases due to technology or population growth (such as right now), it may result in a deflationary spiral.
As Aaron said, it is a personal opinion of how much inflation you prefer.
Do you prefer a relatively high inflation because you want to be employed? Or do you want a relatively low one so your assets appreciate or keep their value?
I have seen what happens when elected politicians print money by popular demand. Hyperinflation, money are worth 3-5% of their value from a few years ago, economy halts. Bulgaria in 1996, and you don't want to go there.
For those who doubt the serious consequences of printing money, just look at Zimbabwe. When your own countries currency is no longer legal tender, it disadvantages the rich and not the poor. The poor in Zimbabwe barter, the rich use money, who really loses out here when the currency completely fails?
Bartering (or even trade in a foreign currency) adds so much friction that all but the most necessary and unsophisticated transaction simply don't happen.
Ok, I didn't look up the numbers. The inflation in January 1997 alone was 380%. This means the stores (the ones that are still open) write new price tags during the day.
I know this is inconceivable to most people, pretty much in the way falling real estate prices were inconceivable. You don't really understand it until you see it.
Nobody makes decisions based on what their money will be worth in 100 years. Low, stable inflation is a good thing. Depreciation to 4% over 100 years is about 3.3% each year. If inflation is stable, you can take that value into account when making contracts with others that deal with longer periods of time. Low inflation only really hurts people who stockpile cash for years. Don't do that.
