inflation is lesser evil
Which of the two is better: inflation or deflation? Inflation is a phenomenon of rising prices without causing change in the levels of employment and output. Deflation, on the other hand, is a phenomenon of falling prices accompanied by a fall in the levels of employment and output.
Both inflation and deflation are harmful for society and have undesirable economic consequences. But when the question of a choice between the two evils of inflation and deflation arises, the lesser evil is to be selected. Inflation is the lesser evil.
Thus, inflation is preferred to deflation because the former is lesser of the two evils. In the words of Keynes, "Inflation is unjust and deflation in inexpedient. Of the two deflations is worse."
Inflation in Unjust,
Inflation is considered unjust in the following grounds:
(() Inflation redistributes income in favour of the rich (profit earners) at the cost of the poor (wage earners and consumers).
(ii) Inflation increases economic inequalities through its redistributive effect. It transfers purchasing power from poorer to the richer sections of the society and thus widens the gap between the rich and the poor.
(iii) Inflation is regressive in its effect. It adversely affects those who are already weak and cannot protect themselves. It specially hits the middle classes who suffer most during inflation.
(iv) Inflation affects different people differently and in different degrees and thus alters the economic and social relationships in the country. It takes away wealth from some groups of the society and transfers it to others arbitrarily, ignoring the maxim of equity.
(v) It is socially demoralising. It encourages the spirit of gambling. It promotes speculative activities and diverts business skill and efficiency from productive to speculative activities.
(vi) It creates money illusion and results in artificial prosperity which is short-lived.
(vii) It reduces the value of money and thus erodes real saving
Both inflation and deflation are harmful for society and have undesirable economic consequences. But when the question of a choice between the two evils of inflation and deflation arises, the lesser evil is to be selected. Inflation is the lesser evil.
Thus, inflation is preferred to deflation because the former is lesser of the two evils. In the words of Keynes, "Inflation is unjust and deflation in inexpedient. Of the two deflations is worse."
Inflation in Unjust,
Inflation is considered unjust in the following grounds:
(() Inflation redistributes income in favour of the rich (profit earners) at the cost of the poor (wage earners and consumers).
(ii) Inflation increases economic inequalities through its redistributive effect. It transfers purchasing power from poorer to the richer sections of the society and thus widens the gap between the rich and the poor.
(iii) Inflation is regressive in its effect. It adversely affects those who are already weak and cannot protect themselves. It specially hits the middle classes who suffer most during inflation.
(iv) Inflation affects different people differently and in different degrees and thus alters the economic and social relationships in the country. It takes away wealth from some groups of the society and transfers it to others arbitrarily, ignoring the maxim of equity.
(v) It is socially demoralising. It encourages the spirit of gambling. It promotes speculative activities and diverts business skill and efficiency from productive to speculative activities.
(vi) It creates money illusion and results in artificial prosperity which is short-lived.
(vii) It reduces the value of money and thus erodes real saving