Money and Inflation

The chapter starts with providing justifications for writing a new book on money and inflation despite the availability of many books, articles, and online materials. The chapter states that though those works have advanced the scholarship—they are insufficient in addressing money and money-related matters in the modern world. The proof is in the inability of nation states in managing monetary matters like inflation and the cost of living crisis. Moreover, those academic works are lacking in clarity as such general people, even trained academics are frequently seen to have no understanding of money. Accordingly, the chapter forwards the goal of developing a new scholarship on money and inflation. The latter part of the chapter discusses the writing style used in the book along with influences, and acknowledges the contribution made by various well-wishers.

The chapter discusses the existing literature on money, specifically the commodity and credit theories of money are analysed as they encompass all existing theories. The commodity theory postulates that money originated as a medium of exchange to overcome the inconvenience of barter. This theory is lacking in historical evidence; however, it well explains many modern money including cryptocurrencies. The credit theory, instead, finds the origin of money in the debtors–creditors relationship. This theory is increasingly gaining the acceptance of modern monetary theorists, and well explains the money creation by commercial banks. The chapter points to the need to develop a new scholarship as these theories are inadequate in explaining money. The literature on inflation is not addressed in this chapter.

The chapter develops the concept of money. First, the methodology is developed, and then several hypothetical transactions are analysed. The analysis reveals that money is best conceptualised as the ability of a person/party to obtain goods and services from another parson/party. This definition of money increases the scope for economic analysis, as things usually not regarded as money become identifiable as money. The ability or money is an integral part of the context under which it operates. The concept of potential money is also developed, which is identified as an ability that may not participate in a specific transaction in a time and place, but is capable of participating in another transaction, in another time and place.

The chapter provides examples of the origin of the ability, including historical ones. However, it also notes that though examples from the history are useful, the question of the origin of money is rather about the analysis of the context that provides someone the ability to obtain goods and services from others. In a given context, the ability arises due to a game-like situation, where the outcome of the action of someone depends on the action of others. The chapter analyses both market-based and non-market-based transactions, and identifies that the creation of the ability is finally down to the use of the human body and mind. In a market, the parties can negotiate to exchange the produce of their body and mind. In a non-market-based situation, a party, such as a dictator can use the body and mind of the followers to extract goods and services from the rest of the population. In a one-sided transaction, a party may receive nothing or a very negligible amount in return. But it is the context that makes the money, i.e. the ability possible, and that may disappear or come back in changing contexts.

The chapter analyses the relationship between money as the ability and the other theories, namely the commodity and credit theories of money. The chapter demonstrates that money identified as the ability to obtain goods and services from others encompasses both theories, and it also explains transactions not explained by any of these theories. The chapter sheds some light on the process of development of modern commodity money. However, a commodity money is only money due to the existence of some other mechanisms allowing that commodity holders to have the ability to obtain goods and services from others. Similarly, a credit money is money as it allows the holders to obtain goods and services from other people. The chapter provides several examples of money that can be explained neither by commodity or credit theories.

The chapter addresses some relevant issues before progressing to analyse inflation. Firstly, the relationship between purchasing power and the ability to obtain is analysed. Purchasing power is useful in a situation characterised by the acts of buying and selling, i.e. in a market. However, ability is a superior concept and applicable to all human transactions. Secondly, the issue of money creation, destruction, and transfer is addressed. It has been noted that money in no form is always transferable. Money creation and destruction depend on the context and transferability of ability. Thirdly, the universality of money is discussed, and it is noted that money is universal as human beings have always and will always transact with each other. However, its form depends on social and individual idiosyncrasies. Lastly, it is noted that money has many names, and is called using different names in different contexts. But the names should not confuse us, as whatever is called, whatever form it takes—the ability to obtain goods and services from others is money.

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.

Inflation is identified as the increased need to use the human body and mind to acquire goods and services from others. Accordingly, the human-made causes of inflation are twofold, the first one is self-inflicted caused by the increased desire to consume, and the second one is due to distortionary policies of governments that change the balance of the ability of various segments. The chapter discusses how human desires have expanded in recent times causing them to work more to fulfil those needs. Modern parenting is discussed as an example. The chapter analyses the post-Covid-19 inflation, specifically, the housing market crisis as an example of how government policies can distort the balance of an economy. Some famines have been analysed to show the impact of policies favouring one party at the expense of another one.

This chapter looks at the book from the perspective of readers. It notes that the book aimed to provide a new analysis of money and inflation, however, it is lacking in actual applications and policy guidelines. In defence, it is stated the book serves the purpose of demystifying the money, which itself has opened up the possibility of understanding various issues that the academic disciplines and policy makers have been struggling to address. The book develops a good multidisciplinary approach linking economics, sociology, and anthropology as such will support future research. When it comes to the policy, specifically to inflation, sector-level analysis should be undertaken, however, the balance of the ability should be studied to understand the causes of inflation in those sectors. Finally, the future of money in an independent AI-driven world is discussed.