Comparing Deflationary and Inflationary Collapse

Both mainstream and dissident observers are coming up with "biflation" as an explanatory term to describe where we are as a planetary economy. That is a signal we're in a conceptual dead end (considering biflation has always been with us for the past half a century at least).



Some reactionary factions in the Western world desire a global return to a system of deflationary non-fiat industrial capitalism. I've began to write how "sound money" advocates are actually biting more than they can chew since deflation leads to collapse of capitalism a lot quicker than inflationary fiat funny money system. There's other very serious structural problems with the current world production and distribution system (such as machine efficiency rising faster than demand for workers) but lets focus on inflation and deflation first to see why there isn't a simple escape from current international fiat casino.


DEFLATIONARY COLLAPSE-
Caused by: Wage prices falling less fast than prices of goods
Result: Crisis of overproduction and profit collapse leading to shut downs of industry due to insufficient funds to run it, bringing corresponding misery.
Illustration of Industry versus "Consumer"/Worker deflationary cycle: 
                                                              

Industry makes KitchenBots (representing needed durable goods in general) and exchanges them for "sound" commodity backed currency. Consumers benefit in the mid stage of the cycle until overproduction leads to insufficient capital accumulation and horrendous social disturbance                                




 
1) Industry cycle begins


Pricey and new KitchenBot exchanged  >>>>>>>>>>>>>>
                                                    <<<<<<<<<<<<<< for 100 SoundBucks

Trickle in supply of KitchenBots begins some profit generation,  "consumers"/workers on average spend 2/3 of their total money on needed goods. Wealthier people/ early adopters create trickle of demand for the pricey good


2) Midstage of the industry cycle

Affordable and well known KitchenBot exchanged  >>>>>>>>>>>>>>
                                                            <<<<<<<<<<<<<< for 50 SoundBucks

Lots of supply as mass production slashes the price of the useful and desired KitchenBots yet profits increase on volume, workers on average spend 1/3 of their total money on goods (since their annual salary cuts are less drastic than cuts in the price of goods)


3) Final destructive stage of the industry cycle

Old and busted stamped out KitchenBot exchanged  >>>>>>>>>>>>>>
                                                            <<<<<<<<<<<<<< for 10 SoundBucks

Super supply and insufficient demand leads to inability of industry to make razor thin margins profitable. Profit collapses, capitalists cant afford to run factories and close them, laying off workers/"consumers". Workers on average spend 1/10th salary on goods yet they are now without income stream to afford the oversupply of goods all around them

Conclusion/Possible Solutions: We start out great on at least the light industry level and end up in a brutish destitute 1930s style depression (think of overproduced livestock being butchered instead of sold/given away to keep some profits). Everything grinds to a halt just as post-scarcity is within reach. One must keep in mind that life cycles of various goods overlap yet the general cumulative tendency is what is illustrated above. Possible remedies include introducing fiat inflation (see below) with serious state provided safety nets, war to destroy surplus goods/industry, and the state taking over some production to run factories without a profit motive (see 1930s-1970s socioeconomic experimentation in Europe)

And now lets turn to our current problem,

INFLATIONARY COLLAPSE-
Caused by: Wage prices rising slower than prices of goods
Result: Crisis of overproduction and profit collapse leading to shut downs of industry due to insufficient funds to run it bringing corresponding misery.
Illustration of Industry versus "Consumer"/Worker inflationary cycle:
                                                            

Industry makes KitchenBots  (representing needed durable good) and exchanges them for "fiat" faith backed currency. Consumers don't really benefit at any stage of the cycle until overproduction leads to insufficient capital accumulation and horrendous social disturbance 





                                
1) Industry cycle begins

Pricey and new KitchenBot exchanged  >>>>>>>>>>>>>>
                                                              <<<<<<<<<<<<< for 100 FiatBucks
Trickle in supply of KitchenBots begins some profit generation,  "consumers"/workers on average spend 2/3 of their total money on needed goods. Wealthier people/ early adopters create trickle of demand for the pricey good

2) Midstage of the industry cycle


Well known, yet still pricey KitchenBot exchanged >>>>>>>>>>
                                                              <<<<<<<<<<<<<< for 200 FiatBucks

Industry greatly increases supply of KitchenBots and KB price even briefly dips to 80-90 FiatBuck range. Yet soon enough new KitchenBots appear for 400 FiatBucks while the older generation ones are sold for 200. Industry is now trying to plan production in batches to prevent strong technology generated deflationary trends from surfacing even now. For the average "consumer", industry also designs shoddy goods that need constant replacement. Profit remains precarious yet stable with proper application of monopoly, cartel, and state ties. Workers meanwhile now spend 9/10th of their income on goods

3) Final destructive stage of the industry cycle

Old and busted KitchenBot exchanged >>>>>>>>>>
                                                              <<<<<<<<<<<<< for 1000 FiatBucks

At this stage we see normal consumer market destroyed, leaving only the luxury consumer market left standing. To overcome relentless international competition and fiat related higher prices on building materials, Industry goes all out to create super supply for ordinary people and hope to make money on mass production (whether technologically induced or using outsourced wage slave labor). These efforts fail as total mass production for KitchenBots was never fully developed due to sneaky attempts to prevent overproduction in the mid stage of the cycle. Workers now spend 10+/10 of their income on goods and increasingly only buy essential goods before gradually beginning to run out of those as well. Run away commodity inflation is the final straw of the fiat cycle. Since the rich do not need too many KitchenBots and since the rest of the workers prefer food and fuel instead, Industry begins to shut down factories and lay off people due to inability to fund further operations.

Conclusion/Possible Solutions:

We start out not that great and end up in the same poverty amongst plentiful resources scenario just as we do in the final stage of the deflationary cycle. We have witnessed what happens to a global system and its peoples under shocks from deflationary financial capitalism in the first half of the 20th century (historically, international financial cartels appear to take over the international industrial cartels regardless of fiat or sound status of the currencies).

We have not yet seen a planet wide inflationary fiat chain of collapse yet. This would imply all major currencies on the planet being affected relatively simultaneously via some failure on the part of Bank for International Settlements strategists to react quickly enough to systemic shocks. In many ways, inflationary monetarism allows Industry a variety of tools and more breathing room to play around with prices and thus survive a while longer. Inevitably, prices rising faster than wages destabilizes the whole system as surely as wages rising faster than prices.

Implications and alternatives

It appears that BOTH paths described above eventually lead real industry into a profit collapse and corresponding large scale social crisis (factory management not having the funds to keep production and distribution running and paying the workers). This would occur even if we minimized the influence of capital allocation industry (global banking cartels) on global industrial cartels. Symbiosis and convergence of finance and industry is as organic and essential to the system as is symbiosis between industry and state, banks and state, etc.

Austrian economists have done a good job continuing where original old school Marxist economists left off (when it comes to expanding a critique of capitalism in general). Namely, they ripped into the disastrous consequences of credit growing faster than real productive economy and the "statism" that often allows this. It is rather hilarious that both Marxists and Austrian economists really rely on victory by default. That is, the former group gets legitimacy by saying the planetary capital accumulating system we had for the past few hundred years is unstable, inefficient, and ultimately unworkable even with mass state subsidies. The latter group get their legitimacy on saying the fiat version of the same planetary system is unworkable due to statist interference. "If only we could purge statism from the world system!" This absurd cry rings forth from various corners of the Western dissident movement.

One way to proceed would be to expand the credit supply at exactly the rate at which expansion of the real physical economy occurs. Some dissident thinkers believe we can bypass the inflation/deflation debate by having the state provide credit for high technology infrastructure (thus creating real economic growth). Another way to proceed would be to overlap the dying capitalist system (whatever form it'll take in the next 10 years) with energy accounting. Both can easily function in parallel for a time. Indeed, if we think of the global socioeconomic transition and experimental period in the decades ahead, overlaps and diverse systems running in parallel will be a must. Which of these experimental sandboxes will expand to swallow the imagination of the whole globe will be left for us to determine.