Money as the Ability and Inflation

The chapter establishes the relationship between inflation with money defined as the ability to obtain goods and services from others. It starts with pointing to the fact that though inflation is regarded as a major problem; studies specific to inflation are limited, even within the discipline of economics. The chapter discusses the economic analysis of inflation, and demonstrates its insufficiency, as it only looks at aggregate price levels, and as such is not applicable to economic systems with many heterogeneous entities comprising of sectors, regions, families, and individuals. Inflation is instead a problem of distribution that impacts different segments of an economy differently through uneven changes of the money, i.e. ability. The book then discusses that the changes in the price level are better explained by the changes in the bargaining power, and thereby the balance of money, i.e. the ability of various segments of the economy. The balance is impacted by non-market issues, the stored ability, and the ability to borrow from the future. A change in the balance implies that individuals may find them requiring to utilise more of physical and mental power to create the ability to acquire goods and services. Inflation thereby is the need to utilise more body and mind to create the ability, i.e. money to acquire a wide range of goods and services.