The awareness of self-similarity has been considered as one of the important human intellectual achievements of last century. But while people are all excited about the amazing mathematical or geometrical embodiments of the universally existing self-similarities, one abstractly meaningful self-similar phenomenon has not appeared on the radar of the study in the field: when a system of interest gets complicated, it would exhibit some macroscopic patterns of various statistical significances at its surface level. This applies to each logical layer of the system if we dig down to the dynamic causes that entail the surface patterns or look into the subsystems that compose the whole system, and thus could be viewed as an abstract self-similarity phenomenon. Although this universal self-similarity might sound too trivial to be qualified for the title of self-similarity, in comparison to things like Mandelbrot set with beautiful pictorial manifestations, it does have very realistic effect upon human practices in any area, by luring humans to work with superficial conclusions based on empirical data of certain statistical validity, without looking into the dynamic causes behind the observed phenomena. Depending upon the angle of observation as well as the relative depth and extensiveness of data collection, sometimes this approach could bring forth very profound insights of the issues, like what have happened in the field of physics, but sometimes it could end up with very partial or even erroneous conclusions.
Economy is a typical complicated dynamic system for which people have generally contented with empirical theories (or mathematical models based on empirical data) without understanding the more fundamental dynamic causes behind the scenes, which could potentially lead to unsatisfactory or even disastrous economic consequences.
A recent conversation with a youngster reminded me of the surprise I had when I read an article written by a supposedly famous economist, in which he was complaining about the exportation-induced inflation in an economically booming country. In the opinion of that economist, without the large scale exportation (meaning focusing on domestic development only), the country would have not only saved the costs of severe environmental pollution and natural resource depletion, but also avoided to suffer the inflation caused by the huge profit from the exportation. I would agree that it is a sad fact that an exporting country of industrial goods could often incur the damages on environment and the over exploitation of natural resources; however, what surprised me was his complaining about the inflation caused by the huge profit from the exportation. It was obvious to me at the moment that, as a famous economist, he had no idea about the role of inflation in the wealth accumulation for ordinary citizens (and thus the whole nation by and large), especially in developing countries.
Then I realized that the author of that article is not alone at all in the professional (academic, industrial, and governmental) community of economics. People in that community, who basically determines the economic wellbeing of this world, are generally confused about the nature of inflation, although the issue of inflation is of critical importance to the economy. In general, there does not seem to be a consensus among the professional economic experts about the role of inflation, mainly because all the studies have been based on empirical analyses, or mathematical modeling based on empirical observations and statistically processed empirical data, without solid persuasive philosophical reasoning, even though some meaningful conclusions have been drawn out of those empirical studies.
As for whether economic growth would cause inflation, some economists point out that inflation is not the result of economic growth, but the result of over growth beyond the capacity (Tejvan Pettinger, November 2017, Bill Conerly, May 2019), some others think that in the long run, inflation is positively related to economic growth in a bidirectional relationship (Jaganath Behera & Alok Kumar Mishra, 2017), while the proponents of the quantity theory tend to deny (David R. Henderson, NOVEMBER/DECEMBER 1999, Frank Shostak, June 2018) that economic growth would cause inflation at all. As for the impact of inflation upon economic growth, some point out that inflation would have negative impact on the economy in the long run (Jose De Gregorio, October 1991, Rosemary Emike Idalu, February 2015), some find that it depends on whether it is in a developed country or an undeveloped country (André Roncaglia de Carvalho, Rafael S. M. Ribeiro & André M. Marques, 2017), in the above mentioned literature of Jaganath Behera & Alok Kumar Mishra, based on data from India, the researchers find that as long as the inflation rate is under 4%, it will exerts a positive impact on economic growth, many others also believe that as long as the inflation rate is under certain cutoff value, e.g. 6% (MARC DAVIS, Updated Feb 9, 2019), 10% (Dr. Econ, June 1998), etc, it would not hurt the economic growth, and the renowned economist Robert Barro finds (Robert J. Barro, October 1995) that inflation would hurt the economic growth only if the inflation rate is higher than 40%, while some others might consider “a little dose of inflation is absolutely essential” (Brian Milligan, January 2015), and thus we need “to bring inflation back to target whenever it threatens to rise too high or fall too low” (Peter Ireland, OCTOBER 2013).
Nonetheless, none of the professional economic experts has so far realized: As a matter of fact, in an economic system, inflation is a mechanism that would naturally redistribute the wealth increase created by a specific group of people to the rest of the society, as I have demonstrated with a simple conceptual analysis for a hypothetical example (Rongqing Dai, July 2019).
Unlike taxation and any other officially enforced order or private philanthropic activity to redistribute the social wealth, the redistribution of wealth increase by inflation happens naturally (without even being noticed by economic experts so far). Here I do not mean to promote inflation. We all know that inflation does hurt people (especially the poor people) and could have negative (or even disastrous) impact upon the economy if not being properly tamed. But the problem is that the professional body of economics does not seem to understand how inflation really operates in the economy, which could logically entail that whatever measures they have taken to handle inflation might be quite indiscriminate for such a critical factor that could sensitively affect the economic wellbeing of the society.
As I pointed out in the abovementioned analysis (Rongqing Dai, July 2019), even if the inflation is in the so-called healthy range which has been deemed by many as positive to the economic development, many (especially the poor) could be hurt by it, because the wealth redistribution by inflation is neither seamless nor perfectly fluent, in the sense that not every one might get the redistributed wealth in the process, and some people might get the redistributed wealth very late. But on the other hand, if we indiscriminately curb inflation simply because of its negative effects, then we might ruin its positive function of naturally redistributing the wealth increase in the society, and we could worsen the economic polarization and thus hurt the poor (and thus hurt the economy in general in the long run as well).
Once we are clear that it is the non-seamless and non-fluent redistribution of wealth increase through inflation, instead of inflation itself, which would hurt the citizens of an economic system, then we are supposed to be able to handle inflation in much more sophisticated ways. In fact, in an extremely ideal situation, when the surface value of every single unit of the currency magically doubles instantly everywhere in the system, including all the prices and all the numbers on every balance sheet (no matter in banks or in private households or any social entities or any single person’s financial records), then we won’t see any effect of inflation, as long as the exchange rates on the international market also adjust proportionally at the same time. Therefore, it is not the change of the surface value of the total amount of financial notes in the market that would cause the noticeable inflation effect, but the uneven change of the purchasing power within the economic system that would create the issue of inflation. Furthermore, if those who boost the total buying power of the society by generating their own wealth increase would voluntarily share their wealth increase with the rest of the society, then the increased total buying power would not change (suppose people would rationally get into contractual cooperation whenever there is the need of more capital than they could offer by individuals). Accordingly, we might expect that if the market could be fine-tuned in such a way that the wealth increase in specific group of the society would be quickly and rationally redistributed to the whole society, while that profitable group of people could still enjoy meaningful wealth increase for the needs of their personal life and the expansion of their businesses, then inflation might be a very useful way not only to facilitate a more balanced quick nationwide economic growth, but also to boost the wealth of average citizens in comparison to other countries, as long as their currency does not over devaluate in the international market (i.e. the exchange rate does not change too much).
Therefore, a better understanding of the nature of inflation than the existing mainstream economic theories would demand a much more fine-tuned treatment of inflation by the economic policy makers or stakeholders in countries around the world to better handle inflation related issues. This would definitely require a more skillful play of both monetary policy and the social assistance measures.
A Further Remark
The confusion about the nature of inflation by the professional (academic, industrial, and state official) body of economics once again demonstrates the detrimental consequence of practices without seeking correct philosophical insights. One naïve or even harmful idea in this high tech era is that philosophy should be only the business of the so-called academic philosophers and the business of the academic philosophers should be only about the so-called confusing big questions or the categorization of the existing philosophical works by famous figures in the past.
It is true that mathematical formulation, lab experiments and field data collection, plus powerful calculation means could be very useful for acquiring philosophical comprehension about the issues in the world, but that does not mean we could replace philosophical contemplation about practical issues with mathematical formulation plus data collection and processing.
Complicatedness could induce a new phenomenal layer for which we might apply statistical analysis without heeding the dynamic causes behind, as mentioned at the beginning of this writing; besides, at the surface level, complicated systems with very different backgrounds (e.g. a mechanical system vs an economic system) might exhibit very similar behaviors, and thus we might apply similar logical thinking to deal with them. But on the other hand, the study of superficial patterns of a complicated system without knowing detailed dynamic causes could also easily overlook some meaningful factors as in the case of inflation. Although the statistical approach is very handy and powerful for studying complicated systems, it also comes with a major defect in general that it highly depends on the size and the contents of sampling itself, and thus could easily miss some hidden behavior of the system. Therefore, when it gets very complicated, it would be desirable to handle the system with much more fine-tuned philosophical thinking instead of basing our actions solely upon statistically average data.
In addition to discovering some details that would be missing in empirical studies, logical philosophizing could also help to offer explanations to some results found in empirical (or empirically modeled) studies, while we cannot do the opposite. For example, with the knowledge of the wealth redistribution mechanism of inflation, we could explain why a rapid economic growth in a developing country could cause high inflation, but not reciprocally.
As a matter of fact, the more and more frequently exposed symptoms of blindness in both scientific and social practices indicate that, as the social dynamics including scientific and technological manipulation gets more and more complicated, human beings are being not only pushed to the era of 2nd order philosophy to think beyond the traditional way of reasoning based on simple relationships of notions, but also naturally forced to a recurrence of the ancient practice of the all-around philosophy in every area of life, as what people did before the birth of the modern science, in the presence of the advanced scientific and technological facilities.
Unfortunately, the populace of this world is still not aware that the biggest threat to the future of this civilization is not the scientific impotence but rather the philosophical impotence, and our educational system and general social practices are still sprinting to the opposite direction against the abovementioned naturally demanded movement by the social dynamics itself. Today human beings are so burdened by all kinds of auxiliary formalities and professionally oriented standard ways of thinking without the capacity for advanced philosophizing. It has been a common thing that the academic professionals are incapable of comprehending writings or ideas that are not exactly in line with what they have been familiar with even if the contents are closely related to what they are doing daily. People who could survive the systematic selection of nowadays education and social competitions are simply incapable of doing all-around philosophizing in everyday issues. We just simply don’t have this type of training anywhere in this world, and this world would no doubt pay more and more prices for this collective global deficiency, as the social dynamics predictably getting more and more complicated.
We do urgently need a philosophical revival for the survival of human civilization, not from within the impotent professional system, but from the open society. We do need the support from the society for the effort of reviving the philosophical vitality in this world.
André Roncaglia de Carvalho, Rafael S. M. Ribeiro & André M. Marques, (2017), Economic development and inflation: a theoretical and empirical analysis, International Review of Applied Economics, DOI: 10.1080/02692171.2017.1351531
Bill Conerly, (May 1, 2019), Does Economic Growth Cause Inflation? Sometimes -- And That Sometime Is Now, Forbes, Leadership Strategy, Available at: https://www.forbes.com/sites/billconerly/2019/05/01/does-economic-growth-cause-inflation-sometimes-and-that-sometime-is-now
Brian Milligan, (13 January 2015), How can inflation be good for you?, Personal Finance Reporter, BBC News, Available at: https://www.bbc.com/news/business-30778491
David R. Henderson, (NOVEMBER/DECEMBER 1999), Does Growth Cause Inflation?, CATO Policy Report, Available at: https://www.cato.org/policy-report/novemberdecember-1999/does-growth-cause-inflation
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Jaganath Behera & Alok Kumar Mishra, (2017), The Recent Inflation Crisis and Long-run Economic Growth in India: An Empirical Survey of Threshold Level of Inflation, South Asian Journal of Macroeconomics and Public Finance 6(1) 105–132, DOI: 10.1177/2277978717695154
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Peter Ireland, (OCTOBER 30, 2013), Do We Really Need More Inflation?, FINANCE, E21, Available at: https://economics21.org/html/do-we-really-need-more-inflation-651.html
Robert J. Barro, (October 1995), Inflation and Economic Growth, National Bureau of Economic Research, Working Paper 5326, Available at: https://www.nber.org/papers/w5326.pdf
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Rosemary Emike Idalu, (February 2015), Impact of Inflation on Economic Growth: Case Study of Nigeria (1970-2013), Rosemary Emike Idalu, February 2015, thesis for the degree of Master of Science in Economics. Available at: https://pdfs.semanticscholar.org/32e8/d024f25c6bc7acb72b60e2c9ba59d976f757.pdf
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