If people can buy more using the same labor, then currency unit depreciation is pointless. Are there no adverse effects of deflation or inflation? No, but the ultimate measure of whether a person can buy more using the same labor, I believe, makes currency depreciation or appreciation effects, quiet small or irrelevant... why SHOULD we care about currency depreciation?...I'll guarantee you that the dollar today will buy only 10% of what you can get 10 years from now, BUT, I will also guarantee that you will be paid double every year, while consumer prices do not exceed the 1:10 ratio as mentioned before.
I consider these several statements of yours to be essentially the same. Therefore, I address them here.
The purpose of economics should not be to ensure future generations an increasing compensation for their labor. Rather, the purpose of economics should be to identify the principles necessary to optimize the allocation of scarce resources toward the creation of value. The key word I wish to emphasize is “optimize”. Providing for a marginal increase in the compensation for labor such as we’ve seen over the last several decades, an increasing and accelerating wealth disparity, and escalating upheavals in the financial and labor markets, is anything but optimal. These effects are caused by the process of malinvestment, itself caused by the expansion of credit beyond the stock of savings – which, incidentally, also causes a depreciating currency. Note that I mentioned before that I see no inherent reason for a manipulated and depreciating currency to make an increasing compensation for labor impossible. However, I do take the position that it is increasingly unlikely as the process continues. Since the effects of malinvestment are cumulative over time, then value creation (on net balance) becomes increasingly difficult and unlikely. The capital structure becomes increasingly unstable and dependent on continual credit infusions of increasing quanitity all derived from credit expansion, and this is unsustainable. Whereas, when credit is derived only from savings (which is underconsumption, by definition), then the lessened demand frees resources for the production (and improvement) of capital goods. We all seem to understand that we can’t have our cake and eat it too. Well, the system in place today does not circumvent this principle. Rather, it introduces a perverse incentive for one to eat their cake, then take someone else’s. In this manner, the system in place fosters both war and the increasing wealth disparity seen in this country and elsewhere.
NOTE: If you do not understand the concept of malinvestment, then please let me know as a proper understanding of this concept is critical to the arguments I’ve made. I’ve found that virtually all so-called “Keynesians” and many so-called “Austrians” do not have a clear understanding.
The only reason you'd care, is if you expected currency to never depreciate, and as such, saved money in money.
The concept of malinvestment must be understood. A sustainable and efficient path toward the creation of value is possible only when credit is derived from savings, where savings is by definition the act of underconsumption or reduced demand (i.e. frugality). This process introduces a natural feedback control system where the availability of credit is a function of savings. When this feedback control is violated with artificial credit expansion, then interest rates are driven to artificially low levels. This introduces an incentive to allocate scarce resources (i.e. capital) toward projects that must finally prove unproductive quite simply because stimulating demand does not create capital. The recent housing debacle was a classic case of this process, and clearly it represented a massive misallocation of resources that should have been better applied in countless other ways. In the end, it is clear to any rational being that a great deal of wealth was destroyed by this process. In particular, it must be understood that
the wealth destroyed was precisely the wealth that was prevented from coming into being. The productive process is hobbled by credit expansion, but a depreciating currency is only an effect of this process, and not a cause. Also, the process leads to an increased disparity of wealth. Certain individuals are afforded greater access to an expanding pool of credit (not derived from savings), and these individuals are able to access the wealth of others without their consent. Compounded with the effects of malinvestment, the result is the transfer of wealth from the average person in the form of a lower value of their savings, and a lower compensation for their labor (all else equal) due to wage increases that do not keep pace with price increases. In the end, the average person must work harder, longer, experience more risk and stress, and finally suffer the brunt of the inevitable financial and economic upheavals that result. A growing wealth disparity is the inevitable result.
I disagree that depreciating currency is per se destructive. It's only destructive if labor compensation and other things do not change in response... I don't care if a dollar today will buy only half of what I can buy tomorrow, as long as I can get paid 10x more tomorrow.
See previous discussions. A depreciating currency is not primarily a cause, but a symptom. Credit expansion beyond the stock of savings is the cause of both malinvestment and a depreciating currency. Again, we should not wish to merely increase compensation for labor, but optimize the process - and this means malinvestment must be eliminated. Since the cause of malinvestment is the expansion of credit beyond the stock of savings, then a sound monetary and financial system is necessary to optimize the creation of value.
