What Is Inflation?

An inflation is defined as when prices in general go up. Not every price, and not each price the same amount, but a general rise in prices is all that the word “inflation” means. Goods and services, in general, go up in price. Number one.

Number two: Simple. The people who decide on prices are employers – the people who own and operate businesses – ’cause that’s where most goods and services come from. And under a private enterprise system, the individuals who set the prices are the owners, operators, chief executives of corporations. So the first question to understand, first point, is that, if you have a general rise in prices, it’s the business community that’s doing that.

Now, the next question: Why would the business community do it?

Well, the first answer again, is simple – is because it’s profitable. It’s the easiest, quickest, and best way to make more profits – which is to take whatever it is you’re producing, and charge more for each unit of it that you sell. In other words, to raise the price. So in many cases, there’s an inflation because businesses are raising prices to make more profits.

But of course, business never wants to be held accountable for making more profits by raising prices, so it has always been attractive for them, and the publicists that they hire, to come up with other reasons.

And here are the two most usual ones: Number one, it’s called “cost push inflation.”

That’s when they can say ‘gee… I’m not raising the price to make more money, I’m only doing it because some costs I have, have gone up, and I just want to recoup the money I have to pay extra for the input, by raising the price of my output.’

So, for example, when the oil prices went crazy in the ’70’s, ’80’s and so on, lots of businesses raised their prices, and when asked why, said, ‘well… the price of oil went up.’

It is, of course, only possible to know whether the price increase the business decided on, had anything really, to do with the cost-price going up, of oil. They may have had an oil price go up by 5%, but jacked up their prices by 20%. Unless you could see the books of these companies – which they are not required to show any reporter – well, then, they could use the oil as an excuse.

The second major reason why businesses could point to something other than their own profit drive, was when the government printed a lot of extra money, the way it is doing now… but the way it also did under the Trump administration, which is why the Republicans are saying ‘he’s [President Biden] straight out lying’ – there’s no nice way to say it.

Yes, when the government prints a lot more money, and people have a lot more money in their hands, then it’s possible for business to jack up prices, ’cause people have the money to pay, and so, you can say there’s some contribution being made by government printing.

But I can give you a hundred examples in the history of the last 200 years of capitalism where governments have printed money and it has not produced a great inflation. And the best example is the last 5, or 10 years, when we have increased money like it’s going out of style, but there’s been no general inflation of goods and services, because all of that money was either hoarded by rich people, or used by them to play in the stock market.

There, indeed, was an inflation in the stock market, which is where all that money went, but you can see, as this example shows, that there’s no necessary link between borrowing more, and printing more money on the one hand, and inflation.

The easiest way to remember is: Inflation is something that businesses do, and when they give you a reason why they’re doing it, keep in mind that they want to keep you away from understanding that profit drives that decision like it drives most other business decisions.

– Professor Dr. Richard D. Wolff, PhD, economist, Professor Emeritus of Economics at the University of Massachusetts Amherst, and Visiting Professor in the Graduate Program in International Affairs of the New School in New York, as heard on the Thom Hartmann Program, Thursday, April 15, 2021, “Inflation: When Does Everything Become Unaffordable?”

Is Scary Inflation Coming to America Soon? (w/Richard Wolff)