Press Release: The Roots of Inflation – A Unicist Functionalist Approach

We would like to give access to a research work on currency and inflation that is ongoing at The Unicist Research Institute since 1990. This research is based on the unicist functionalist approach to economics. The objective of the research led to the conclusion that inflation is functional to different disequilibria of an economic system until it becomes chaotic, generating hyperinflation where the agents involved do not consider the functionality of the social system to ensure their own survival.

Based on this point of view of inflation, the present inflation of the world was generated by the disequilibria of the COVID-19 crisis that drove to the need of generating financial resources to compensate for the impossibility of generating value.

The end of the crisis establishes a new starting point for the economic systems that still needs to be assimilated. The war between Russia and Ukraine is another structural disequilibrium because it affected the world-economic system.

Inflation and deflation are equilibrators of the distribution of value in an economic system driven by structural disequilibria in macro- or microeconomics.  Inflation is multiplicated by the expectation of inflation that works as a catalyst to accelerate the speed of changes in prices.

The growth of the inflation rate ends when a new equilibrium is accepted in an economic system. It is recommended accessing the origins of the hyperinflation of Germany in 1923 and Hungary in 1945 which have totally different origins, one related to macroeconomic problems and one driven by structural microeconomic disequilibrium.

At the end, inflation is driven by the macroeconomics agents, but the origin is not necessarily there. For example, now the conflict between Russia and Ukraine is the origin of the inflation in Russia while the inflation of Argentina is generated by the structural disequilibrium of its productive system.

Structurally speaking, different economic systems generate different causes for inflation, which necessarily end in macroeconomic disequilibrium although they have multiple origins. Solving the structural origins of inflation allows rebalancing the economic systems and making inflation unnecessary.

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This functionalist approach to inflation, based on research from The Unicist Research Institute, provides a unique perspective on the roots of inflation and how it operates as an equilibrating mechanism for disequilibria within economic systems. Let’s break down some of the major points:

  • Functionality of Inflation: The idea that inflation is functional to correct various imbalances in an economy until it becomes chaotic is intriguing. Essentially, inflation can serve as a “pressure release valve” for various economic imbalances. However, if left unchecked, it can lead to hyperinflation, which can be catastrophic for an economy.
  • Catalyst of Expectation: The argument that the expectation of inflation accelerates the actual rate of inflation is aligned with mainstream economic thought. When people expect prices to rise in the future, they tend to act in ways that can further drive up prices, such as buying goods now in anticipation of future price hikes.
  • End of Inflationary Cycle: The assertion that inflation ends when a new equilibrium is achieved underscores the dynamic nature of economies. Once the underlying disequilibrium is addressed, inflation can subside.
  • Diverse Origins: Highlighting the hyperinflation of Germany in 1923 and Hungary in 1945 provides two distinct examples of inflation’s causes. Germany’s hyperinflation can be traced to macroeconomic issues, such as war reparations from the Treaty of Versailles, while Hungary’s was tied to structural microeconomic problems post-World War II.
  • Current Examples: Bringing in current events, like the conflict between Russia and Ukraine or Venezuela’s economic situation, demonstrates how various factors can drive inflation. In Russia, geopolitical conflict and associated sanctions can lead to inflation. In Venezuela, a collapse in the productive system, compounded by other factors like political instability and sanctions, led to hyperinflation.
  • Solution: The conclusion emphasizes the importance of understanding the root causes of inflation. By addressing these structural origins, policymakers can work towards rebalancing their economic systems, thus rendering inflation unnecessary.

The functionalist approach sheds light on the myriad of factors that can lead to inflation, emphasizing that while macroeconomic agents drive inflation, its origins can be found elsewhere in the economic system. This underscores the complexity of inflation and the need for holistic economic policies that address root causes rather than just symptoms.

The Unicist Research Institute