What Causes Inflationary Economic Trend?
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What Causes Inflationary Economic Trend?

 
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See interview of Ashok  Kothare

Modern economic trend shows that a currency gradually loses its purchasing power, whatever be that currency. No attempt to stop this from happening, has worked. I asked many experienced economists and other people having professional skills in this subject and they could not give me a reply that may satisfy me.

In earlier times prices were remaining steady for a very long period. This could keep the purchasing power of the currency steady. Many economists blame this phenomenon to the process of Industrialization. However, they could not clearly explain why purchasing power of any currency should fall, gradually as that country moves towards progress. None of these explanations could satisfy the question. I decided to study movement of currency and I came to know that this trend to reduce purchasing power of currency has something to do with modern marketing policy. Modern trend to promote “use and throw” in all consumable and also other products, I feel, is responsible for ever increasing need for currency. More need of currency lesser its value! Leading to inflation. Of course, this does not rule out other causes for inflation or reduction in purchasing power of rupee. In this post I wish to high light effects of “use and throw” policy on the inflation.

Let me give an example of computer. In computers we see that parts are not generally replaced or trend to repair them is discouraged by the makers of these products. They encourage that old piece is trashed and new piece purchased. As against that in earlier practice, machines were continuously repaired and there was a steady business of spare parts. Because repairing was possible as the original manufacturer would make them available; machines were in use for a longer time. There was policy of selling spares as against the complete machines. The economy was more on the sell of spares than the complete machines. As a result less money was required to keep things moving. Consequently, less currency was enough to keep the market moving. That controlled inflation. Here I admit that so far, in our country repair culture has kept computer prices in control but in other countries where repair culture has been crushed, prices are ever sky rocketing. Leading to inflation. In U.S. dollar is reduced to a fragment of what it was a century ago. This is because there is continuous inflationary effect in that market due to this policy of “use and throw”. Many Americans have voiced concern against this policy but due to pressures from manufacturers they do not change this policy. Many fail to understand the effect of this policy and generally over look it but I insist that a thorough study of its effects showed to me that this seemingly ordinary policy has very fetal effects on the purchasing power of that currency.

Many industries had their economy based on the sell of spares rather than the complete machine. There were small entrepreneurs who were running their small scale industries to produce spares of machines. Less credit required to produce spares than the complete machines. As a result banks were not hard pressed to give large sums of loan money. This had a cumulative effect on need of currency. Therefore, currency’s purchasing power could remain steady.

This trend of “use and throw”, policy began first in electronic goods and having found suitable for the manufacturers, spread to many other products where repairs were more suitable than replacements. Use and throw policy has other bad effects. They produce large quantity of scrap material creating tremendous pressure on material handling activity. Today we have a pressing problem in this sector. This policy demands ever increased inputs of many raw materials such as metal, chemicals who are in short supply in the market. This flares up costs of these materials adding to inflation. Huge shortages are artificially created as many raw materials are not available in plenty. Leading to increase in their prices. If this keeps happening in all the materials, obviously that causes inflation in prices, to that artificially created shortages adds up, further causing further inflation. To support new machines manufacturers produce new models to impress the gullible customers, in actual, these new models hardly have anything new worth it. This is actually a cheating, manufacturers do to push their products.

Solicitors of use and throw policy suggest that it is suitable for the manufacturers. Improving their turn over and so profits. However, many studies have not corroborated with this opinion. It is like saying that bulk business is more profitable than retail business. Amounts involved are very large but that does not mean the percentage of profit will be high. Actually percentage of profit in spares is always higher as less investment is involved.

I am of the opinion that at government level this policy of “use and throw” should be studied and I am sure if this policy is stopped and policy of repair established, need for currency will be greatly reduced. And as a result, purchasing power of the currency will not deteriorate. This will also help reduce scrap creation, that is also one more serious problem we are facing. Secondly creating waste products of packaging material will also be reduced. There are several advantages of repair culture over “use and throw”, culture for customers.

For that, first of all, we should understand relation between this policy and inflation or loss of currency power. Most people are reluctant to accept this relation, and that is the first difficulty. Many ridiculed me for my suggestion but on more deep study of currency movements I found that these two things are definitely interrelated.

In India, repair culture is not altogether gone and so we still have some value for our currency. In many other countries where this policy is more prominently pursued we see that their currency is losing its purchasing power more rapidly. Many manufacturers want to discourage repair culture altogether so that customers will have to buy always new products. Causing ever increasing inflation. India is a country where kapadi business is one of the oldest. Kapadi means repairing business. Many communities were fully involved in this activity. We have surnames such as Kapadia, Kapadi indicating the trend in our markets. Originally, these people were engaged in repairing clothes and so that name but as industrial environment increased these people entered in the repair of machines and such many things. This activity helped in keeping the value of rupee steady. Amongst Indian communities Bohra community had specialized in repair business.

There are other points to be discussed in this regards, that is about the measure difference in the policy of insisting for manufacture of complete machine and making repairable machines and encourage spare part business. It is the difference in macro economic development and micro economic development. Macro development involves large capital and so encourages stock marketing. Present economists want to encourage stock market and so they insist for macro developments. Micro economics involved spare part making activity and that does not encourage stock marketing. Therefore, present economists want to discourage all activities encouraging micro development. Macro developments help developed country's economics. However, micro development helps developing and poor countries such as ours. I suggest at the end of my post that our policy makers in economics should give credence to this reading and as we are a developing and a poor country we should encourage all micro economic activities. Unfortunately, our economists behave as if ours is a developed or rich country to afford share market based economics.

According to my private study our taxation policy and methods of budgetary provisions is one another cause for inflation. I shall share my findings on this very vital topic in the near future. Why and how our Reserve Bank must have access to all budgetary provisions made by all governments and local bodies is necessary to control inflation, I shall discuss in that post.

 

You may contact me on my Email ID given below,

ashokkothare@gmail.com

I invite you to visit my other blogs if you are interested in stories,

Ashok Kothare’s Blog

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