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  Effects on Distribution

Effects on Distribution:

a) Business class:
During inflation, producer and businessmen make enormous gains. Obviously, during deflation, they make losses.

b) Fixed income groups:

People in fixed income assembly are hit hard in times of inflation. The incomes of salary earners and salaried people like clerks, teachers, and judges do not augment as fast as prices. Even retired people acquiring pension are also affected throughout inflation.

Salary earners and salaried–people profit during a period of falling prices. However it is not an actual gain since many people will lose their jobs throughout deflation. Unemployment is an inferior evil than rising prices.

c) Investors:

People who have invested their money in “gilt edged” securities (i.e., government securities) will only acquire fixed income. Therefore their position is like those in the fixed income assembly. However those who encompass shares in companies will make profits throughout a period of rising prices and lose during a period of dropping prices. In Germany, thousands of middle class families were ruin throughout the inflation since all their lifetime savings were decreased to nothing by the tremendous rise in prices. When the value of money drops continuously, it becomes inappropriate as a store of value. The people will not save it at all.

d) Rentiers:

Rentiers profit during deflation and lose during inflation. However the gain during deflation is merely a temporary feature.

It can be seen from the above conversation that violent changes in prices are a bad thing. Both inflation and deflation are huge evils. “Inflation is unfair and deflation is inexpedient” (i.e., damaging). Certain economists believe that the two, deflation is worse since it outcomes in unemployment. That is why it is now usually agreed that a steadily incresaing price level is a good thing for economic growth and social justice. We might agree with Robertson when he states that “money that is a source of so many blessings to mankind becomes also, unless we can control it, a source of confusion and peril”.

 

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