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Is Inflation Necessary?

The straight answer is "no". The clarity of my emphasis is prompted by a friend's reaction to my previous article "No Winners When The Inflation Balloon Pops".

In the article, I said "A certain amount of inflation is necessary to keep things from cascading downward." My friend exclaimed quite vociferously that "INFLATION IS NEVER NECESSARY!" He's right. Both he and I shared similar concerns a number of years ago when one of our monetary heroes, Milton Friedman, made similar comments about the necessity of inflation. To us, it seemed like a cop out; and, it still does.

As far as my own comment is concerned, I asked my friend to consider the context in which my statement was made. Here is an excerpt from the article which should help clarify why I said what I did...

"A certain amount of inflation is necessary to keep things from cascading downward. Over time, the effects of inflation are less obvious, so, additional money creation is required periodically in order to maintain the status quo. Beyond that, there is less of the stimulation that was intended. It is very similar to the vicious cycle of a drug addict.

The dependency on the drug (i.e., money) is heightened over time. The drug's effects wear off more quickly and the dosage needs to be greater just to maintain stability, let alone get the desired effect as originally intended. The symptoms of withdrawal are often so bad as to prompt further addiction, rather than endure what is necessary stop the habit."

The point here should be clear. The world economy functions on credit. Society is addicted to it, including the periodic expansion (re: additional inflation) of credit supply on an ongoing basis.

Now, think again of the drug addict. Is it necessary to continue the addiction beyond any fixed or specified point? Can an addict simply stop the habit in its tracks by quitting "cold turkey"?

No, it is not "necessary" to continue the habit; and, yes, it is possible to simply stop the habit by quitting. Withdrawal symptoms, however, would be horribly difficult depending on the severity of the addiction. They could be cataclysmic.
 

Healing Can Be Painful

An addict who wants to avoid the painful symptoms of withdrawal can try to manage the addiction. The problem is that unless the body is cleansed and allowed to heal, long-term deterioration continues.

Somewhat similarly, the Federal Reserve continues to battle the effects of inflation which it has been creating for more than one hundred years. A century of continuous expansion of the supply of money and credit has eroded the purchasing power of the U.S. dollar by more than 99 percent.

In order to manage the effects of that inflation (or, as we said in reference to the actions of the drug addict, "manage the addiction"), the Fed continues to dance around its own guilt and responsibility for the financial mess that exists and tells us “I think we were getting closer and closer to price stability" (Jerome Powell March 19, 2025). Sure, we are.
 

Conclusion

In summary, then, inflation is never necessary. Rather, it must be maintained at this point in order to avoid a rapid descent into deflation and depression.

The avoidance is only temporary, though, and any borrowed time is short. Eventually, we will all experience the painful symptoms of financial withdrawal.

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