Fighting inflation transfers wealth from debtors to creditors and is not value-free

Evidence

The problem of restraint was all the more difficult because, as Friedman later recognised, some benefited from inflation while others suffered, so ‘society is divided into winners and losers’; the prime winners, he argued, were debtors, as the real value of debt was diminished by increases in prices, and the prime losers were creditors and the entire ‘savings and loan industry’, whose returns on their lending were simultaneously diminished. … If inflation had distributional consequences, including transferring money from creditors to debtors, then the decision to treat combatting inflation as the primary economic goal could not be value-free. … This was clear in Chile, where Allende’s government broke with a long tradition of responding to inflation by cutting social services, especially for the poor. When the opposition blocked new taxes that would have financed social programmes, the UP government accepted inflation as a ‘lesser evil’ than failing to fulfil its election commitments to Chile’s poorest citizens. — Jessica Whyte, The Morals of the Market, 339

Categorization

• XREF: Fisher’s debt-deflation and the creditor/debtor split connects to the credit-money literature and to Piketty on capital accumulation. — connects to: Inflation acts as a class-specific tax benefiting debtors over creditors — Mark Blyth, Austerity: The History of a Dangerous…, 46; Large debts shrink in real terms when growth outpaces the debt — Mark Blyth, Austerity: The History of a Dangerous…, 52; Austerity has three forms that jointly transfer wealth to creditors and employers. — Clara E. Mattei, The Capital Order: How Economists…, 46 (+3 more)
• SEED: Angle for an essay: ‘The distributional politics of inflation-targeting regimes’ — who wins and who loses when central banks prioritize price stability.

Broader Connections

• Inflation erodes the real cost of fixed-interest debt #expands (0.95)
• Quantitative easing stabilized banks while inflating asset values for the affluent #exemplifies (0.80) — Andrew deWaard, Derivative Media, 84