“Davidson” submits:
Q3 2022 hedge fund letters, conferences and more
Inflation occurs when currency growth exceeds the value created from that currency issuance. M2(currency measure) expands and contracts with business cycles and government programs.
Only businesses create deflation i.e. produce more value than the currency used to create it. The reason for this is that for business to be successful long-term it must make a profit. Profit margin is an ‘all-in’ measure of value creation in society. It incorporates all the social, raw material, labor, and other costs of production but it also measures the public benefit to the standard of living. Profit margin is the difference between the public demand for the product/service and the efficiency of the company to deliver. It incorporates the value of innovation that the public perceives using available resources including the public’s perception of value of alternative products and alternative uses for those resources. Profit margins widen and narrow dependent on well products/services match cultural perceptions.
Those who rail at corporate profit as plunderers of society misperceive how societies share resources and advance through individual innovations. The higher the profit margin the more successful a company is serving the public.
Profitable companies create more value from conversion of innovation than the currency deployed. This creates deflation. Unprofitable companies fail. They default on dept(currency issued) and that currency cancelled (written down) by investors and lenders having no impact on inflation. Governments have no profit measure. Currency is created for public policy initiatives i.e. domestic and international security, human welfare, infrastructure and etc. Some of this spending does add value to society. Policies which add no value based on currency issuance are the source of inflation. Some of government spending is always inflationary i.e., war, making government the sole source of inflation.
Inflation is always a balance of business creation of value vs government debasement.
Of great value to society would be a measure of value creation that would limit government currency issuance/spending only to programs with a measurable benefit.
