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Inflation

In economics, inflation is a general increase in the prices of goods and services in an economy. This is usually measured using the consumer price index (CPI). When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of CPI inflation is deflation, a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose.

Changes in inflation are widely attributed to fluctuations in real demand for goods and services (also known as demand shocks, including changes in fiscal or monetary policy), changes in available supplies such as during energy crises (also known as supply shocks), or changes in inflation expectations, which may be self-fulfilling. Moderate inflation affects economies in both positive and negative ways. The negative effects would include an increase in the opportunity cost of holding money, uncertainty over future inflation, which may discourage investment and savings, and, if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity, allowing the central bank greater freedom in carrying out monetary policy, encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation.

Today, most economists favour a low and steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the probability of economic recessions by enabling the labor market to adjust more quickly in a downturn and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy while avoiding the costs associated with high inflation. The task of keeping the rate of inflation low and stable is usually given to central banks that control monetary policy, normally through the setting of interest rates and by carrying out open market operations.

Terminology
The term originates from the Latin inflare (to blow into or inflate). Conceptually, inflation refers to the general trend of prices, not changes in any specific price. For example, if people choose to buy more cucumbers than tomatoes, cucumbers consequently become more expensive and tomatoes less expensive. These changes are not related to inflation; they reflect a shift in tastes. Inflation is related to the value of currency itself. When currency was linked with gold, if new gold deposits were found, the price of gold and the value of currency would fall, and consequently, prices of all other goods would become higher.

Classical economics
By the nineteenth century, economists categorised three separate factors that cause a rise or fall in the price of goods: a change in the value or production costs of the good, a change in the price of money which then was usually a fluctuation in the commodity price of the metallic content in the currency, and currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency. Following the proliferation of private banknote currency printed during the American Civil War, the term "inflation" started to appear as a direct reference to the currency depreciation that occurred as the quantity of redeemable banknotes outstripped the quantity of metal available for their redemption. At that time, the term inflation referred to the devaluation of the currency, and not to a rise in the price of goods. This relationship between the over-supply of banknotes and a resulting depreciation in their value was noted by earlier classical economists such as David Hume and David Ricardo, who would go on to examine and debate what effect a currency devaluation has on the price of goods.

Related concepts
Other economic concepts related to inflation include: deflation – a fall in the general price level; disinflation – a decrease in the rate of inflation; hyperinflation – an out-of-control inflationary spiral; stagflation – a combination of inflation, slow economic growth and high unemployment; reflation – an attempt to raise the general level of prices to counteract deflationary pressures; and asset price inflation – a general rise in the prices of financial assets without a corresponding increase in the prices of goods or services; agflation – an advanced increase in the price for food and industrial agricultural crops when compared with the general rise in prices.

More specific forms of inflation refer to sectors whose prices vary semi-independently from the general trend. "House price inflation" applies to changes in the house price index while "energy inflation" is dominated by the costs of oil and gas.

Overview
Inflation has been a feature of history during the entire period when money has been used as a means of payment. One of the earliest documented inflations occurred in Alexander the Great's empire 330 BCE. Historically, when commodity money was used, periods of inflation and deflation would alternate depending on the condition of the economy. However, when large, prolonged infusions of gold or silver into an economy occurred, this could lead to long periods of inflation.

The adoption of fiat currency by many countries, from the 18th century onwards, made much larger variations in the supply of money possible. Rapid increases in the money supply have taken place a number of times in countries experiencing political crises, producing hyperinflations – episodes of extreme inflation rates much higher than those observed in earlier periods of commodity money. The hyperinflation in the Weimar Republic of Germany is a notable example. The hyperinflation in Venezuela is the highest in the world, with an annual inflation rate of 833,997% as of October 2018.

Historically, inflations of varying magnitudes have occurred, interspersed with corresponding deflationary periods, from the price revolution of the 16th century, which was driven by the flood of gold and particularly silver seized and mined by the Spaniards in Latin America, to the largest paper money inflation of all time in Hungary after World War II.

However, since the 1980s, inflation has been held low and stable in countries with independent central banks. This has led to a moderation of the business cycle and a reduction in variation in most macroeconomic indicators – an event known as the Great Moderation.

Ancient Europe
Alexander the Great's conquest of the Persian Empire in 330 BCE was followed by one of the earliest documented inflation periods in the ancient world. Rapid increases in the quantity of money or in the overall money supply have occurred in many different societies throughout history, changing with different forms of money used. For instance, when silver was used as currency, the government could collect silver coins, melt them down, mix them with other, less valuable metals such as copper or lead and reissue them at the same nominal value, a process known as debasement. At the ascent of Nero as Roman emperor in AD 54, the denarius contained more than 90% silver, but by the 270s hardly any silver was left. By diluting the silver with other metals, the government could issue more coins without increasing the amount of silver used to make them. When the cost of each coin is lowered in this way, the government profits from an increase in seigniorage. This practice would increase the money supply but at the same time the relative value of each coin would be lowered. As the relative value of the coins becomes lower, consumers would need to give more coins in exchange for the same goods and services as before. These goods and services would experience a price increase as the value of each coin is reduced. Again at the end of the third century CE during the reign of Diocletian, the Roman Empire experienced rapid inflation.

Ancient China
Song dynasty China introduced the practice of printing paper money to create fiat currency. During the Mongol Yuan dynasty, the government spent a great deal of money fighting costly wars, and reacted by printing more money, leading to inflation. Fearing the inflation that plagued the Yuan dynasty, the Ming dynasty initially rejected the use of paper money, and reverted to using copper coins.

Medieval Egypt
During the Malian king Mansa Musa's hajj to Mecca in 1324, he was reportedly accompanied by a camel train that included thousands of people and nearly a hundred camels. When he passed through Cairo, he spent or gave away so much gold that it depressed its price in Egypt for over a decade, reducing its purchasing power. A contemporary Arab historian remarked about Mansa Musa's visit:

"Gold was at a high price in Egypt until they came in that year. The mithqal did not go below 25 dirhams and was generally above, but from that time its value fell and it cheapened in price and has remained cheap till now. The mithqal does not exceed 22 dirhams or less. This has been the state of affairs for about twelve years until this day by reason of the large amount of gold which they brought into Egypt and spent there [...]."

Medieval age and "price revolution" in Western Europe
There is no reliable evidence of inflation in Europe for the thousand years that followed the fall of the Roman Empire, but from the Middle Ages onwards reliable data do exist. Mostly, the medieval inflation episodes were modest, and there was a tendency that inflationary periods were followed by deflationary periods.

From the second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the "price revolution", with prices on average rising perhaps sixfold over 150 years. This is often attributed to the influx of gold and silver from the New World into Habsburg Spain, with wider availability of silver in previously cash-starved Europe causing widespread inflation. European population rebound from the Black Death began before the arrival of New World metal, and may have begun a process of inflation that New World silver compounded later in the 16th century.

After 1700
A pattern of intermittent inflation and deflation periods persisted for centuries until the Great Depression in the 1930s, which was characterized by major deflation. Since the Great Depression, however, there has been a general tendency for prices to rise every year. In the 1970s and early 1980s, annual inflation in most industrialized countries reached two digits (ten percent or more). The double-digit inflation era was of short duration, however, inflation by the mid-1980s returned to more modest levels. Amid this, general trends there have been spectacular high-inflation episodes in individual countries in interwar Europe, towards the end of the Nationalist Chinese government in 1948–1949, and later in some Latin American countries, in Israel, and in Zimbabwe. Some of these episodes are considered hyperinflation periods, normally designating inflation rates that surpass 50 percent monthly.

Measures
Inflation data.webp is a leading indicator, CPI and PCE lag

]] Given that there are many possible measures of the price level, there are many possible measures of price inflation. Most frequently, the term "inflation" refers to a rise in a broad price index representing the overall price level for goods and services in the economy. The consumer price index (CPI), the personal consumption expenditures price index (PCEPI) and the GDP deflator are some examples of broad price indices. However, "inflation" may also be used to describe a rising price level within a narrower set of assets, goods or services within the economy, such as commodities (including food, fuel, metals), tangible assets (such as real estate), services (such as entertainment and health care), or labor. Although the values of capital assets are often casually said to "inflate," this should not be confused with inflation as a defined term; a more accurate description for an increase in the value of a capital asset is appreciation. The FBI (CCI), the producer price index, and employment cost index (ECI) are examples of narrow price indices used to measure price inflation in particular sectors of the economy. Core inflation is a measure of inflation for a subset of consumer prices that excludes food and energy prices, which rise and fall more than other prices in the short term. The Federal Reserve Board pays particular attention to the core inflation rate to get a better estimate of long-term future inflation trends overall.

The inflation rate is most widely calculated by determining the movement or change in a price index, typically the consumer price index.

The inflation rate is the percentage change of a price index over time. The Retail Prices Index is also a measure of inflation that is commonly used in the United Kingdom. It is broader than the CPI and contains a larger basket of goods and services.

The RPI is indicative of the experiences of a wide range of household types, particularly low-income households.

To illustrate the method of calculation, in January 2007, the U.S. Consumer Price Index was 202.416, and in January 2008 it was 211.080. The formula for calculating the annual percentage rate inflation in the CPI over the course of the year is: $$\left(\frac{211.080-202.416}{202.416}\right)\times100\%=4.28\%$$

The resulting inflation rate for the CPI in this one-year period is 4.28%, meaning the general level of prices for typical U.S. consumers rose by approximately four percent in 2007.

Other widely used price indices for calculating price inflation include the following:
 * Producer price indices (PPIs) which measures average changes in prices received by domestic producers for their output. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer price index measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" to consumers, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale price index.
 * Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee.
 * Core price indices: because food and oil prices can change quickly due to changes in supply and demand conditions in the food and oil markets, it can be difficult to detect the long run trend in price levels when those prices are included. Therefore, most statistical agencies also report a measure of 'core inflation', which removes the most volatile components (such as food and oil) from a broad price index like the CPI. Because core inflation is less affected by short run supply and demand conditions in specific markets, central banks rely on it to better measure the inflationary effect of current monetary policy.

Other common measures of inflation are:
 * GDP deflator is a measure of the price of all the goods and services included in gross domestic product (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure.

∴ $$\mbox{GDP Deflator} = \frac{\mbox{Nominal GDP}}{\mbox{Real GDP}}$$ In some cases, the measures are meant to be more humorous or to reflect a single place. This includes:
 * Regional inflation The Bureau of Labor Statistics breaks down CPI-U calculations down to different regions of the US.
 * Historical inflation Before collecting consistent econometric data became standard for governments, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence of technology.
 * Asset price inflation is an undue increase in the prices of real assets, such as real estate.

 * The Christmas Price Index, which calculates the cost of the items mentioned in a song, "The Twelve Days of Christmas".
 * The Big Mac Index, which compares prices across countries.
 * The Jollof index, which calculates the price of food needed to make a Jollof rice, a popular African dish.
 * The Two Dishes One Soup Index, which calculates the price of food needed to cook one soup and two other dishes for a small family in Hong Kong.
 * The Herengracht index, which calculates the price of housing in a fashionable neighborhood of Amsterdam.
 * The Lipstick index, which claimed that when the economy got worse, small luxury sales, such as lipstick, would go up.

Issues in measuring
Measuring inflation in an economy requires objective means of differentiating changes in nominal prices on a common set of goods and services, and distinguishing them from those price shifts resulting from changes in value such as volume, quality, or performance. For example, if the price of a can of corn changes from $0.90 to $1.00 over the course of a year, with no change in quality, then this price difference represents inflation. This single price change would not, however, represent general inflation in an overall economy. Overall inflation is measured as the price change of a large "basket" of representative goods and services. This is the purpose of a price index, which is the combined price of a "basket" of many goods and services. The combined price is the sum of the weighted prices of items in the "basket". A weighted price is calculated by multiplying the unit price of an item by the number of that item the average consumer purchases. Weighted pricing is necessary to measure the effect of individual unit price changes on the economy's overall inflation. The consumer price index, for example, uses data collected by surveying households to determine what proportion of the typical consumer's overall spending is spent on specific goods and services, and weights the average prices of those items accordingly. Those weighted average prices are combined to calculate the overall price. To better relate price changes over time, indexes typically choose a "base year" price and assign it a value of 100. Index prices in subsequent years are then expressed in relation to the base year price. While comparing inflation measures for various periods one has to take into consideration the base effect as well.

Inflation measures are often modified over time, either for the relative weight of goods in the basket, or in the way in which goods and services from the present are compared with goods and services from the past. Basket weights are updated regularly, usually every year, to adapt to changes in consumer behavior. Sudden changes in consumer behavior can still introduce a weighting bias in inflation measurement. For example, during the COVID-19 pandemic it has been shown that the basket of goods and services was no longer representative of consumption during the crisis, as numerous goods and services could no longer be consumed due to government containment measures ("lock-downs").

Over time, adjustments are also made to the type of goods and services selected to reflect changes in the sorts of goods and services purchased by 'typical consumers'. New products may be introduced, older products disappear, the quality of existing products may change, and consumer preferences can shift. Both the sorts of goods and services which are included in the "basket" and the weighted price used in inflation measures will be changed over time to keep pace with the changing marketplace. Different segments of the population may naturally consume different "baskets" of goods and services and may even experience different inflation rates. It is argued that companies have put more innovation into bringing down prices for wealthy families than for poor families.

Inflation numbers are often seasonally adjusted to differentiate expected cyclical cost shifts. For example, home heating costs are expected to rise in colder months, and seasonal adjustments are often used when measuring inflation to compensate for cyclical energy or fuel demand spikes. Inflation numbers may be averaged or otherwise subjected to statistical techniques to remove statistical noise and volatility of individual prices.

When looking at inflation, economic institutions may focus only on certain kinds of prices, or special indices, such as the core inflation index which is used by central banks to formulate monetary policy.

Most inflation indices are calculated from weighted averages of selected price changes. This necessarily introduces distortion, and can lead to legitimate disputes about what the true inflation rate is. This problem can be overcome by including all available price changes in the calculation, and then choosing the median value. In some other cases, governments may intentionally report false inflation rates; for instance, during the presidency of Cristina Kirchner (2007–2015) the government of Argentina was criticised for manipulating economic data, such as inflation and GDP figures, for political gain and to reduce payments on its inflation-indexed debt.

Inflation expectations
Inflation expectations or expected inflation is the rate of inflation that is anticipated for some time in the foreseeable future. There are two major approaches to modeling the formation of inflation expectations. Adaptive expectations models them as a weighted average of what was expected one period earlier and the actual rate of inflation that most recently occurred. Rational expectations models them as unbiased, in the sense that the expected inflation rate is not systematically above or systematically below the inflation rate that actually occurs.

A long-standing survey of inflation expectations is the University of Michigan survey.

Inflation expectations affect the economy in several ways. They are more or less built into nominal interest rates, so that a rise (or fall) in the expected inflation rate will typically result in a rise (or fall) in nominal interest rates, giving a smaller effect if any on real interest rates. In addition, higher expected inflation tends to be built into the rate of wage increases, giving a smaller effect if any on the changes in real wages. Moreover, the response of inflationary expectations to monetary policy can influence the division of the effects of policy between inflation and unemployment (see monetary policy credibility).

Historical approaches
Theories of the origin and causes of inflation have existed since at least the 16th century. Two competing theories, the quantity theory of money and the real bills doctrine, appeared in various disguises during century-long debates on recommended central bank behaviour. In the 20th century, Keynesian, monetarist and new classical (also known as rational expectations) views on inflation dominated post-World War II macroeconomics discussions, which were often heated intellectual debates, until some kind of synthesis of the various theories was reached by the end of the century.

Before 1936
The price revolution from ca. 1550–1700 caused several thinkers to present what is now considered to be early formulations of the quantity theory of money (QTM). Other contemporary authors attributed rising price levels to the debasement of national coinages. Later research has shown that also growing output of Central European silver mines and an increase in the velocity of money because of innovations in the payment technology, in particular the increased use of bills of exchange, contributed to the price revolution.

An alternative theory, the real bills doctrine (RBD), originated in the 17th and 18th century, receiving its first authoritative exposition in Adam Smith's The Wealth of Nations. It asserts that banks should issue their money in exchange for short-term real bills of adequate value. As long as banks only issue a dollar in exchange for assets worth at least a dollar, the issuing bank's assets will naturally move in step with its issuance of money, and the money will hold its value. Should the bank fail to get or maintain assets of adequate value, then the bank's money will lose value, just as any financial security will lose value if its asset backing diminishes. The real bills doctrine (also known as the backing theory) thus asserts that inflation results when money outruns its issuer's assets. The quantity theory of money, in contrast, claims that inflation results when money outruns the economy's production of goods.

During the 19th century, three different schools debated these questions: The British Currency School upheld a quantity theory view, believing that the Bank of England's issues of bank notes should vary one-for-one with the bank's gold reserves. In contrast to this, the British Banking School followed the real bills doctrine, recommending that the bank's operations should be governed by the needs of trade: Banks should be able to issue currency against bills of trading, i.e. "real bills" that they buy from merchants. A third group, the Free Banking School, held that competitive private banks would not overissue, even though a monopolist central bank could be believed to do it.

The debate between currency, or quantity theory, and banking schools during the 19th century prefigures current questions about the credibility of money in the present. In the 19th century, the banking schools had greater influence in policy in the United States and Great Britain, while the currency schools had more influence "on the continent", that is in non-British countries, particularly in the Latin Monetary Union and the Scandinavian Monetary Union.

During the Bullionist Controversy during the Napoleonic Wars, David Ricardo argued that the Bank of England had engaged in over-issue of bank notes, leading to commodity price increases. In the late 19th century, supporters of the quantity theory of money led by Irving Fisher debated with supporters of bimetallism. Later, Knut Wicksell sought to explain price movements as the result of real shocks rather than movements in money supply, resounding statements from the real bills doctrine.

In 2019, monetary historians Thomas M. Humphrey and Richard Timberlake published "Gold, the Real Bills Doctrine, and the Fed: Sources of Monetary Disorder 1922–1938".

Keynes and the early Keynesians
John Maynard Keynes in his 1936 main work The General Theory of Employment, Interest and Money emphasized that wages and prices were sticky in the short run, but gradually responded to aggregate demand shocks. These could arise from many different sources, e.g. autonomous movements in investment or fluctuations in private wealth or interest rates. Economic policy could also affect demand, monetary policy by affecting interest rates and fiscal policy either directly through the level of government final consumption expenditure or indirectly by changing disposable income via tax changes.

The various sources of variations in aggregate demand will cause cycles in both output and price levels. Initially, a demand change will primarily affect output because of the price stickiness, but eventually prices and wages will adjust to reflect the change in demand. Consequently, movements in real output and prices will be positively, but not strongly, correlated.

Keynes' propositions formed the basis of Keynesian economics which came to dominate macroeconomic research and economic policy in the first decades after World War II. Other Keynesian economists developed and reformed several of Keynes' ideas. Importantly, Alban William Phillips in 1958 published indirect evidence of a negative relation between inflation and unemployment, confirming the Keynesian emphasis on a positive correlation between increases in real output (normally accompanied by a fall in unemployment) and rising prices, i.e. inflation. Phillips' findings were confirmed by other empirical analyses and became known as a Phillips curve. It quickly became central to macroeconomic thinking, apparently offering a stable trade-off between price stability and employment. The curve was interpreted to imply that a country could achieve low unemployment if it were willing to tolerate a higher inflation rate or vice versa.

The Phillips curve model described the U.S. experience well in the 1960s, but failed to describe the stagflation experienced in the 1970s.

Monetarism
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During the 1960s the Keynesian view of inflation and macroeconomic policy altogether were challenged by monetarist theories, led by Milton Friedman. Friedman famously stated that "Inflation is always and everywhere a monetary phenomenon." He revived the quantity theory of money by Irving Fisher and others, making it into a central tenet of monetarist thinking, arguing that the most significant factor influencing inflation or deflation is how fast the money supply grows or shrinks.

The quantity theory of money, simply stated, says that any change in the amount of money in a system will change the price level. This theory begins with the equation of exchange:

 * $$MV = PQ,$$

where
 * $$M$$ is the nominal quantity of money;
 * $$V$$ is the velocity of money in final expenditures;
 * $$P$$ is the general price level;
 * $$Q$$ is an index of the real value of final expenditures.

In this formula, the general price level is related to the level of real economic activity (Q), the quantity of money (M) and the velocity of money (V). The formula itself is simply an uncontroversial accounting identity because the velocity of money (V) is defined residually from the equation to be the ratio of final nominal expenditure ($$ PQ $$) to the quantity of money (M).

Monetarists assumed additionally that the velocity of money is unaffected by monetary policy (at least in the long run), that the real value of output is also exogenous in the long run, its long-run value being determined independently by the productive capacity of the economy, and that money supply is exogenous and can be controlled by the monetary authorities. Under these assumptions, the primary driver of the change in the general price level is changes in the quantity of money. Consequently, monetarists contended that monetary policy, not fiscal policy, was the most potent instrument to influence aggregate demand, real output and eventually inflation. This was contrary to Keynesian thinking which in principle recognized a role for monetary policy, but in practice believed that the effect from interest rate changes to the real economy was slight, making monetary policy an ineffective instrument, preferring fiscal policy. Conversely, monetarists considered fiscal policy, or government spending and taxation, as ineffective in controlling inflation.

Friedman also took issue with the traditional Keynesian view concerning the Phillips curve. He, together with Edmund Phelps, contended that the trade-off between inflation and unemployment implied by the Phillips curve was only temporary, but not permanent. If politicians tried to exploit it, it would eventually disappear because higher inflation would over time be built into the economic expectations of households and firms. This line of thinking led to the concept of potential output (sometimes called the "natural gross domestic product"), a level of GDP where the economy is stable in the sense that inflation will neither decrease nor increase. This level may itself change over time when institutional or natural constraints change. It corresponds to the Non-Accelerating Inflation Rate of Unemployment, NAIRU, or the "natural" rate of unemployment (sometimes called the "structural" level of unemployment). If GDP exceeds its potential (and unemployment consequently is below the NAIRU), the theory says that inflation will accelerate as suppliers increase their prices. If GDP falls below its potential level (and unemployment is above the NAIRU), inflation will decelerate as suppliers attempt to fill excess capacity, cutting prices and undermining inflation.

Rational expectations theory
In the early 1970s, rational expectations theory led by economists like Robert Lucas, Thomas Sargent and Robert Barro transformed macroeconomic thinking radically. They held that economic actors look rationally into the future when trying to maximize their well-being, and do not respond solely to immediate opportunity costs and pressures. In this view, future expectations and strategies are important for inflation as well. One implication was that agents would anticipate the likely behaviour of central banks and base their own actions on these expectations. A central bank having a reputation of being "soft" on inflation will generate high inflation expectations, which again will be self-fulfilling when all agents build expectations of future high inflation into their nominal contracts like wage agreements. On the other hand, if the central bank has a reputation of being "tough" on inflation, then such a policy announcement will be believed and inflationary expectations will come down rapidly, thus allowing inflation itself to come down rapidly with minimal economic disruption. The implication is that credibility becomes very important for central banks in fighting inflation.

New Keynesians
Events during the 1970s proved Milton Friedman and other critics of the traditional Phillips curve right: The relation between the inflation rate and the unemployment rate broke down. Eventually, a consensus was established that the break-down was due to agents changing their inflation expectations, confirming Friedman's theory. As a consequence, the notion of a natural rate of unemployment (alternatively called the structural rate of unemployment) was accepted by most economists, meaning that there is a specific level of unemployment that is compatible with stable inflation. Stabilization policy must therefore try to steer economic activity so that the actual unemployment rate converges towards that level. The trade-off between the unemployment rate and inflation implied by Phillips thus holds in the short term, but not in the long term. Also the oil crises of the 1970s causing at the same time rising unemployment and rising inflation (i.e. stagflation) led to a broad recognition by economists that supply shocks could independently affect inflation.

During the 1980s a group of researchers named new Keynesians emerged who accepted many originally non-Keynesian concepts like the importance of monetary policy, the existence of a natural level of unemployment and the incorporation of rational expectations formation as a reasonable benchmark. At the same time they believed, like Keynes did, that various market imperfections in different markets like labour markets and financial markets were also important to study to understand both inflation generation and business cycles. During the 1980s and 1990s, there were often heated intellectual debates between new Keynesians and new classicals, but by the 2000s, a synthesis gradually emerged. The result has been called the new Keynesian model, the "new neoclassical synthesis" or simply the "new consensus" model.

Current consensus
The current post-2000 consensus view on inflation causes can be illustrated by a modern Phillips curve including a role for supply shocks and inflation expectations beside the original role of aggregate demand (determining employment and unemployment fluctuations) in influencing the inflation rate. Consequently, demand shocks, supply shocks and inflation expectations are all potentially important determinants of inflation, confirming the basis of the older triangle model by Robert J. Gordon.

 * Demand shocks may both decrease and increase inflation. So-called demand-pull inflation may be caused by increases in aggregate demand due to increased private and government spending, etc. Conversely, negative demand shocks may be caused by contractionary economic policy.
 * Supply shocks may also lead to both higher or lower inflation, depending on the character of the shock. Cost-push inflation is caused by a drop in aggregate supply (potential output). This may be due to natural disasters, war or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices.
 * Inflation expectations play a major role in forming actual inflation. High inflation can prompt employees to demand rapid wage increases to keep up with consumer prices. In this way, rising wages in turn can help fuel inflation as firms pass these higher labor costs on to their customers as higher prices, leading to a feedback loop. In the case of collective bargaining, wage growth may be set as a function of inflationary expectations, which will be higher when inflation is high. This can cause a wage-price spiral. In a sense, inflation begets further inflationary expectations, which beget further (built-in) inflation.

The important role of rational expectations is recognized by the emphasis on credibility on the part of central banks and other policy-makers. The monetarist assertion that monetary policy alone could successfully control inflation formed part of the new consensus which recognized that both monetary and fiscal policy are important tools for influencing aggregate demand. Indeed, monetary policy is under normal circumstances considered to be the preferable instrument to contain inflation. At the same time, most central banks have abandoned trying to target money growth as originally advocated by the monetarists. Instead, most central banks in developed countries focus on adjusting interest rates to achieve an explicit inflation target. The reason for central bank reluctance in following money growth targets is that the money stock measures that central banks can control tightly, e.g. the monetary base, are not very closely linked to aggregate demand, whereas conversely money supply measures like M2, which are in some cases more closely correlated with aggregate demand, are difficult to control for the central bank. Also, in many countries the relationship between aggregate demand and all money stock measures have broken down in recent decades, weakening further the case for monetary policy rules focusing on the money supply.

However, while more disputed in the 1970s, surveys of members of the American Economics Association (AEA) since the 1990s have shown that most professional American economists generally agree with the statement "Inflation is caused primarily by too much growth in the money supply", while the same surveys have shown a lack of consensus by AEA members since the 1990s that "In the short run, a reduction in unemployment causes the rate of inflation to increase" has developed despite more agreement with the statement in the 1970s.

2021–2023 inflation surge

In 2021–2023, most countries experienced a considerable increase in inflation, culminating some time in 2022. The annual inflation rate for the United States was 3.7% for the 12 months ended September, according to U.S. Labor Department data published on Oct. 12, 2023. This was the same as the 3.7% in the previous period. The causes are believed to be a mixture of demand and supply shocks, whereas inflation expectations generally seem to remain anchored (as per May 2023). Possible causes on the demand side include expansionary fiscal and monetary policy in the wake of the global COVID-19 pandemic, whereas supply shocks include supply chain problems also caused by the pandemic and exacerbated by energy price rises following the Russian invasion of Ukraine in 2022.

Price gouging has also been mentioned as a possible cause: Price inelasticity can contribute to inflation when firms consolidate, tending to support monopoly or monopsony conditions anywhere along the supply chain for goods or services. When this occurs, firms can provide greater shareholder value by taking a larger proportion of profits than by investing in providing greater volumes of their outputs. Examples include the rise in gasoline and other fossil fuel prices in the first quarter of 2022. Shortly after initial energy price shocks caused by the Russian invasion of Ukraine had subsided, oil companies found that supply chain constrictions, already exacerbated by the ongoing global pandemic, supported price inelasticity, i.e., they began lowering prices to match the price of oil when it fell much more slowly than they had increased their prices when costs rose.

Heterodox views
Additionally, there are theories about inflation accepted by economists outside of the mainstream. The Austrian School stresses that inflation is not uniform over all assets, goods, and services. Inflation depends on differences in markets and on where newly created money and credit enter the economy. Ludwig von Mises said that inflation should refer to an increase in the quantity of money, that is not offset by a corresponding increase in the need for money, and that price inflation will necessarily follow, always leaving a poorer nation.

General effect

Inflation is the decrease in the purchasing power of a currency. That is, when the general level of prices rise, each monetary unit can buy fewer goods and services in aggregate. The effect of inflation differs on different sectors of the economy, with some sectors being adversely affected while others benefitting. For example, with inflation, those segments in society which own physical assets, such as property, stock etc., benefit from the price/value of their holdings going up, when those who seek to acquire them will need to pay more for them. Their ability to do so will depend on the degree to which their income is fixed. For example, increases in payments to workers and pensioners often lag behind inflation, and for some people income is fixed. Also, individuals or institutions with cash assets will experience a decline in the purchasing power of the cash. Increases in the price level (inflation) erode the real value of money (the functional currency) and other items with an underlying monetary nature.

Debtors who have debts with a fixed nominal rate of interest will see a reduction in the "real" interest rate as the inflation rate rises. The real interest on a loan is the nominal rate minus the inflation rate. The formula R = N-I approximates the correct answer as long as both the nominal interest rate and the inflation rate are small. The correct equation is r = n/i where r, n and i are expressed as ratios (e.g. 1.2 for +20%, 0.8 for −20%). As an example, when the inflation rate is 3%, a loan with a nominal interest rate of 5% would have a real interest rate of approximately 2% (in fact, it's 1.94%). Any unexpected increase in the inflation rate would decrease the real interest rate. Banks and other lenders adjust for this inflation risk either by including an inflation risk premium to fixed interest rate loans, or lending at an adjustable rate.

Negative
High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services to focus on profit and losses from currency inflation. Uncertainty about the future purchasing power of money discourages investment and saving. Inflation hurts asset prices such as stock performance in the short-run, as it erodes non-energy corporates' profit margins and leads to central banks' policy tightening measures. Inflation can also impose hidden tax increases. For instance, inflated earnings push taxpayers into higher income tax rates unless the tax brackets are indexed to inflation.

With high inflation, purchasing power is redistributed from those on fixed nominal incomes, such as some pensioners whose pensions are not indexed to the price level, towards those with variable incomes whose earnings may better keep pace with the inflation. This redistribution of purchasing power will also occur between international trading partners. Where fixed exchange rates are imposed, higher inflation in one economy than another will cause the first economy's exports to become more expensive and affect the balance of trade. There can also be negative effects to trade from an increased instability in currency exchange prices caused by unpredictable inflation.

 * Hoarding: People buy durable and/or non-perishable commodities and other goods as stores of wealth, to avoid the losses expected from the declining purchasing power of money, creating shortages of the hoarded goods.

 * Social unrest and revolts: Inflation can lead to massive demonstrations and revolutions. For example, inflation and in particular food inflation is considered one of the main reasons that caused the 2010–2011 Tunisian revolution and the 2011 Egyptian revolution, according to many observers including Robert Zoellick, president of the World Bank. Tunisian president Zine El Abidine Ben Ali was ousted, Egyptian President Hosni Mubarak was also ousted after only 18 days of demonstrations, and protests soon spread in many countries of North Africa and Middle East.

 * Hyperinflation: If inflation becomes too high, it can cause people to severely curtail their use of the currency, leading to an acceleration in the inflation rate. High and accelerating inflation grossly interferes with the normal workings of the economy, hurting its ability to supply goods. Hyperinflation can lead people to abandon the use of the country's currency in favour of external currencies (dollarization), as has been reported to have occurred in North Korea.

 * Corruption: Due to a high rise of inflation, it has been seen to affect unemployment levels around the world. From 2005 to 2019, it was found that the wellbeing costs of unemployment was 5 times higher than inflation. The trust between the central banks and individuals has become more limited. According to the Global Labor Organization (GLO), a global sample of 1.5 million observations during the 1999 and 2012 found a negative relationship of ECB unemployment between countries of Spain, Ireland, Greece, and Portugal a financial crisis. Lack of trust is shown between the government and political institutions which potentially, this can create bias towards both sides as unemployment rate will still increase. If the rate goes on, predictions of the economic activity may decrease, and investments from around the world will soon slowdown creating a "economy crash" that can affect millions of peoples' living.

 * Allocative efficiency: A change in the supply or demand for a good will normally cause its relative price to change, signaling the buyers and sellers that they should re-allocate resources in response to the new market conditions. But when prices are constantly changing due to inflation, price changes due to genuine relative price signals are difficult to distinguish from price changes due to general inflation, so agents are slow to respond to them. The result is a loss of allocative efficiency.

 * Shoe leather cost: High inflation increases the opportunity cost of holding cash balances and can induce people to hold a greater portion of their assets in interest paying accounts. However, since cash is still needed to carry out transactions this means that more "trips to the bank" are necessary to make withdrawals, proverbially wearing out the "shoe leather" with each trip.

 * Menu cost
 * With high inflation, firms must change their prices often to keep up with economy-wide changes. But often changing prices is itself a costly activity whether explicitly, as with the need to print new menus, or implicitly, as with the extra time and effort needed to change prices constantly.

 * Tax: Inflation serves as a hidden tax on currency holdings.

Positive

 * Labour-market adjustments: Nominal wages are slow to adjust downward. This can lead to prolonged disequilibrium and high unemployment in the labor market. Since inflation allows real wages to fall even if nominal wages are kept constant, moderate inflation enables labor markets to reach equilibrium faster.

 * Room to maneuver: The primary tools for controlling the money supply are the ability to set the discount rate, the rate at which banks can borrow from the central bank, and open market operations, which are the central bank's interventions into the bonds market with the aim of affecting the nominal interest rate. If an economy finds itself in a recession with already low, or even zero, nominal interest rates, then the bank cannot cut these rates further (since negative nominal interest rates are impossible) to stimulate the economy – this situation is known as a liquidity trap.

 * Mundell–Tobin effect: According to the Mundell–Tobin effect, an increase in inflation leads to an increase in capital investment, which leads to an increase in growth. The Nobel laureate Robert Mundell noted that moderate inflation would induce savers to substitute lending for some money holding as a means to finance future spending. That substitution would cause market clearing real interest rates to fall. The lower real rate of interest would induce more borrowing to finance investment. In a similar vein, Nobel laureate James Tobin noted that such inflation would cause businesses to substitute investment in physical capital (plant, equipment, and inventories) for money balances in their asset portfolios. That substitution would mean choosing the making of investments with lower rates of real return. (The rates of return are lower because the investments with higher rates of return were already being made before.) The two related effects are known as the Mundell–Tobin effect. Unless the economy is already overinvesting according to models of economic growth theory, that extra investment resulting from the effect would be seen as positive.

 * Instability with deflation: Economist S.C. Tsiang noted that once substantial deflation is expected, two important effects will appear; both a result of money holding substituting for lending as a vehicle for saving. The first was that continually falling prices and the resulting incentive to hoard money will cause instability resulting from the likely increasing fear, while money hoards grow in value, that the value of those hoards are at risk, as people realize that a movement to trade those money hoards for real goods and assets will quickly drive those prices up. Any movement to spend those hoards "once started would become a tremendous avalanche, which could rampage for a long time before it would spend itself." Thus, a regime of long-term deflation is likely to be interrupted by periodic spikes of rapid inflation and consequent real economic disruptions. The second effect noted by Tsiang is that when savers have substituted money holding for lending on financial markets, the role of those markets in channeling savings into investment is undermined. With nominal interest rates driven to zero, or near zero, from the competition with a high return money asset, there would be no price mechanism in whatever is left of those markets. With financial markets effectively euthanized, the remaining goods and physical asset prices would move in perverse directions. For example, an increased desire to save could not push interest rates further down (and thereby stimulate investment) but would instead cause additional money hoarding, driving consumer prices further down and making investment in consumer goods production thereby less attractive. Moderate inflation, once its expectation is incorporated into nominal interest rates, would give those interest rates room to go both up and down in response to shifting investment opportunities, or savers' preferences, and thus allow financial markets to function in a more normal fashion.

Cost-of-living allowance
The real purchasing power of fixed payments is eroded by inflation unless they are inflation-adjusted to keep their real values constant. In many countries, employment contracts, pension benefits, and government entitlements (such as social security) are tied to a cost-of-living index, typically to the consumer price index. A cost-of-living adjustment (COLA) adjusts salaries based on changes in a cost-of-living index. It does not control inflation, but rather seeks to mitigate the consequences of inflation for those on fixed incomes. Salaries are typically adjusted annually in low inflation economies. During hyperinflation they are adjusted more often. They may also be tied to a cost-of-living index that varies by geographic location if the employee moves.

Annual escalation clauses in employment contracts can specify retroactive or future percentage increases in worker pay which are not tied to any index. These negotiated increases in pay are colloquially referred to as cost-of-living adjustments ("COLAs") or cost-of-living increases because of their similarity to increases tied to externally determined indexes.

Controlling inflation
Monetary policy is the policy enacted by the monetary authorities (most frequently the central bank of a nation) to accomplish their objectives. Among these, keeping inflation at a low and stable level is often a prominent objective, either directly via inflation targeting or indirectly, e.g. via a fixed exchange rate against a low-inflation currency area.

Historical approaches to inflation control
Historically, central banks and governments have followed various policies to achieve low inflation, employing various nominal anchors. Before World War I, the gold standard was prevalent, but was eventually found to be detrimental to economic stability and employment, not least during the Great Depression in the 1930s. For the first decades after World War II, the Bretton Woods system initiated a fixed exchange rate system for most developed countries, tying their currencies to the US dollar, which again was directly convertible to gold. The system disintegrated in the 1970s, however, after which the major currencies started floating against each other. During the 1970s many central banks turned to a money supply target recommended by Milton Friedman and other monetarists, aiming for a stable growth rate of money to control inflation. However, it was found to be impractical because of the unstable relationship between monetary aggregates and other macroeconomic variables, and was eventually abandoned by all major economies. In 1990, New Zealand as the first country ever adopted an official inflation target as the basis of its monetary policy, continually adjusting interest rates to steer the country's inflation rate towards its official target. The strategy was generally considered to work well, and central banks in most developed countries have over the years adapted a similar strategy. As of 2023, the central banks of all G7 member countries can be said to follow an inflation target, including the European Central Bank and the Federal Reserve, who have adopted the main elements of inflation targeting without officially calling themselves inflation targeters. In emerging countries fixed exchange rate regimes are still the most common monetary policy.

Inflation targeting

From its first inception in New Zealand in 1990, direct inflation targeting as a monetary policy strategy has spread to become prevalent among developed countries. The basic idea is that the central bank perpetually adjusts interest rates to steer the country's inflation rate towards its official target. Via the monetary transmission mechanism interest rate changes affect aggregate demand in various ways, causing output and employment to respond. Changes in employment and unemployment rates affect wage setting, leading to larger or smaller wage increases, depending on the direction of the interest rate adjustment. A changed rate of wage increases will transmit into changes in price setting – i.e. a change in the inflation rate. The relation between (un)employment and relation is known as the Phillips curve.

In most OECD countries, the inflation target is usually about 2% to 3% (in developing countries like Armenia, the inflation target is higher, at around 4%). Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.

Fixed exchange rates
Under a fixed exchange rate currency regime, a country's currency is tied in value to another single currency or to a basket of other currencies. A fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the currency it is pegged to. It can also be used as a means to control inflation if the currency area tied to itself maintains low and stable inflation. However, as the value of the reference currency rises and falls, so does the currency pegged to it. This essentially means that the inflation rate in the fixed exchange rate country is determined by the inflation rate of the country the currency is pegged to. In addition, a fixed exchange rate prevents a government from using domestic monetary policy to achieve macroeconomic stability.

As of 2023, Denmark is the only OECD country which maintains a fixed exchange rate (against the euro), but it is frequently used as a monetary policy strategy in developing countries.

Gold standard

The gold standard is a monetary system in which a region's common medium of exchange is paper notes (or other monetary token) that are normally freely convertible into pre-set, fixed quantities of gold. The standard specifies how the gold backing would be implemented, including the amount of specie per currency unit. The currency itself has no innate value but is accepted by traders because it can be redeemed for the equivalent value of the commodity (specie). A U.S. silver certificate, for example, could be redeemed for an actual piece of silver.

Under a gold standard, the long term rate of inflation (or deflation) would be determined by the growth rate of the supply of gold relative to total output. Critics argue that this will cause arbitrary fluctuations in the inflation rate, and that monetary policy would essentially be determined by an intersection of however much new gold was produced by mining and changing demand for gold for practical uses. The gold standard was historically found to make it more difficult to stabilize employment levels and avoid recessions and was eventually abandoned everywhere.

Wage and price controls
Another method attempted in the past have been wage and price controls ("incomes policies"). Temporary price controls may be used as a complement to other policies to fight inflation; price controls may make disinflation faster, while reducing the need for unemployment to reduce inflation. If price controls are used during a recession, the kinds of distortions that price controls cause may be lessened. However, economists generally advise against the imposition of price controls.

Wage and price controls, in combination with rationing, have been used successfully in wartime environments. However, their use in other contexts is far more mixed. Notable failures of their use include the 1972 imposition of wage and price controls by Richard Nixon. More successful examples include the Prices and Incomes Accord in Australia and the Wassenaar Agreement in the Netherlands.

In general, wage and price controls are regarded as a temporary and exceptional measures, only effective when coupled with policies designed to reduce the underlying causes of inflation during the wage and price control regime, for example, winning the war being fought.

title: Inflation


text:
Jacques Vergès

Jacques Vergès (5 March 1925 – 15 August 2013) was a Vietnamese French lawyer and anti-colonial activist. Vergès began as a fighter in the French Resistance during World War II, under Charles de Gaulle's Free French forces. After becoming a lawyer, he became well known for his defense of FLN militants during the Algerian War of Independence. He was later involved in a number of controversial and high-profile legal cases, with a series of defendants charged with terrorism, serial murder, crimes against humanity, and war crimes. This includes Nazi officer Klaus Barbie "the Butcher of Lyon" in 1987, terrorist Carlos the Jackal in 1994, and former Khmer Rouge head of state Khieu Samphan in 2008. He also defended infamous Holocaust denier Roger Garaudy in 1998 as well as members of the Baader-Meinhof gang. As a result of taking on such clients, he garnered criticism from members of the public, including intellectuals Bernard-Henri Lévy and Alain Finkielkraut, political-activist Gerry Gable as well as Nazi hunter Serge Klarsfeld.

Vergès attracted widespread public attention in the 1950s for his use of trials as a forum for expressing views against French colonial rule in Algeria, questioning the authority of the prosecution and causing chaos in proceedings – a method he promoted as "rupture defense" in his book De la stratégie judiciaire. He was imprisoned for his activism in 1960 and temporarily lost his license to officially practice law. He was a supporter of the Palestinian fedayeen in the 1960s. He would later disappear from 1970 to 1978, without ever explaining his whereabouts during that period. An outspoken anti-imperialist, he continued his vocal political activism in the 2000s, including opposing the War on Terror. The media sensationalized his activities with the sobriquet "the Devil's advocate", and Vergès himself contributed to his "notorious" public persona by such acts as titling his autobiography The Brilliant Bastard and giving provocative replies in interviews, such as "I'd even defend Bush! But only if he agrees to plead guilty."

Biography
Born on 5 March 1925 in Ubon Ratchathani, Siam, and brought up on the island of Réunion with his twin brother Paul Vergès, Jacques Vergès was the son of Raymond Vergès, a French doctor from Réunion, and a Vietnamese teacher named Pham Thi Khang. In 1942, with his father's encouragement, he sailed to Liverpool to become part of the Free French Forces under Charles de Gaulle, and to participate in the anti-Nazi resistance. He went on to fight in Italy, France, and Germany.

After the end of World War II he entered the University of Paris, where he enrolled in the Faculté des lettres pursuing a degree in history, studying the Hindi and Malagasy languages. In 1945 he joined the Young Communists movement of the French Communist Party, while his father was helping to organize the Reunionese Communist Party. During this time he befriended Erich Honecker, future leader of East Germany, Henri Alleg and Felix Hophouet-Boigny, future President of the Ivory Coast. He would also marry his first wife Karine at this time. His twin brother, Paul, returned to Reunion, later becoming leader of the Communist Party there, and a member of the European Parliament. In 1949 Jacques became president of the AEC (Association for Colonial Students), where he befriended Pol Pot and Khieu Samphan. In 1950, at the request of his Communist mentors, he went to Prague to lead a youth organization for four years. He returned to Paris, where he went on to study law, passing his final exams in 1955. Vergès was then elected Secrétaire of the Conférence du barreau de Paris.

Political activities
Arriving in Paris, Jacques Vergès joined the French Communist Party (PCF) in 1945. On 25 May 1946, Alexis de Villeneuve, who ran for the legislative elections under the Popular Republican Movement (MRP) against his father, Raymond Vergès, was assassinated in front of the cathedral of Saint-Denis in Réunion. The firearm used belonged to Raymond Vergès.

Algerian independence movement
After returning to France, Vergès became a lawyer and quickly gained fame for his willingness to take controversial cases. During the struggle in Algiers he defended many accused of terrorism by the French government. He was a supporter of the Algerian armed independence struggle against France, comparing it to French armed resistance to the Nazi German occupation in the 1940s. Vergès became a nationally known figure following his defence of the anti-French Algerian guerrilla Djamila Bouhired on terrorism charges: she was convicted of blowing up a café and killing eleven people inside it. This is where he pioneered the rupture strategy, in which he accused the prosecution of the same offenses as the defendants. She was sentenced to death but pardoned and freed following public pressure brought on by Vergès' efforts. After some years she married Vergès, who had by then converted to Islam. In an effort to limit Vergès' success at defending Algerian clients, he was sentenced to two months in jail in 1960 and temporarily lost his licence to officially practice law for anti-state activities. After Algeria gained its independence in 1962, Vergès obtained Algerian citizenship, going by the name of Mansour. During the Algerian War he had become acquainted with Ahmed Ben Bella of the FLN and the first President of Algeria, Swiss Nazi and financier for the FLN, François Genoud, as well as Ahmed Huber, a Swiss Muslim-convert and Nazi who covered the war as a journalist.

Israel and the Palestinians
In 1965, Vergès arrived in Israel, seeking to represent Mahmud Hijazi (מחמוד חיג'אזי), a Palestinian member of the Fatah movement who had at the time been sentenced to death by an Israeli military court on charges of terrorism, for crossing into Israel and setting a small demolition charge near the National Water Conduit in the Galilee. Israel's Justice Minister Dov Yosef forbade Hijazi's being represented by a foreign lawyer. Vergès was detained at the airport and deported. Nevertheless, though Vergès did not succeed in getting to represent Hijazi in court, his initiative generated considerable publicity and controversy which were influential in Hijazi's death sentence being eventually commuted by an appeals court. (Hijazi was later released in a 1971 prisoner exchange.)

Missing years
From 24 February 1970 to 1978, Vergès disappeared from public view without explanation. He refused to comment about those years, remarking in an interview with Der Spiegel that "It's highly amusing that no one, in our modern police state, can figure out where I was for almost ten years." Vergès was last seen at an anti-colonial rally in Paris. He left his wife, Djamila, and cut off all his ties with his friends and family. Many people wondered if he had been killed, kidnapped, become a spy, or had gone into hiding. His whereabouts during these years have remained a mystery. Many of his close associates of the time assume that he was in Cambodia with the Khmer Rouge, a rumour Pol Pot (Brother #1), Nuon Chea (Brother #2) and Ieng Sary (Brother #3) have denied. There are claims that Vergès was spotted in Paris by Mohamed Boudia, a contact from Algerian War and an old Communist associate, Jiří Pelikán. He is also alleged to have been in Switzerland at the house of François Genoud according to Ahmed Huber. He was also thought to be in several Arab countries in the company of Ali Hassan Salameh and Palestinian militant groups according to the Lebanese attorney Karim Pakradouni, and exiled Algerian politician Bachir Boumaza.

High-profile defendants
After Vergès's return to public life he resumed his legal practice, taking on a variety of legal cases ranging from; Muslim children who wanted to wear headscarves in school, transfusion-transmitted HIV/AIDS patients contaminated by unscreened blood, prostitutes suing their pimps for back pay to defending high profile war criminals and dictators.

The first file that Jacques Vergès handled as a lawyer concerns Sonacotra. He engages in a "defence of rupture" (also called "strategy of rupture"), rather than what he calls the "defense of connivance", which was classically pleaded: the accused becomes the accuser, considers that the judge does not have jurisdiction or that the court does not have the legitimacy, and takes the opinion to witness.

Notable clients
Sources:

 * Front de Libération National (Algeria)
 * Baader-Meinhof gang
 * Anis al-Naqqash
 * Bernard Bonnet
 * Bruno Bréguet
 * Charles Sobhraj
 * Félix Houphouët-Boigny
 * Georges Ibrahim Abdallah
 * Gnassingbé Eyadéma
 * Idriss Déby
 * Ilich Ramírez Sánchez, aka Carlos the Jackal
 * Klaus Croissant
 * Magdalena Kopp
 * Omar Bongo
 * Omar Raddad
 * The ex-captain Paul Barril the Élysée wiretapping affair
 * Roger Garaudy
 * Siné
 * Slobodan Milosevic (legal council)
 * Tariq Aziz

Klaus Barbie
The thrust of Vergès's defence in the case was that Barbie was being singled out for prosecution while the French state conveniently ignored other cases that qualified as crimes against humanity. Vergès adopted a tu quoque defense, asking the judges "is a crime against humanity to be defined as only one of Nazis against the Jews or if it applies to more serious crimes...the crimes of imperialists against people struggling for their independence?", going on to say there was nothing his client did against the Resistance that was not done by "certain French officers in Algeria" whom Vergès noted could not be prosecuted because of de Gaulle's amnesty of 1962. As such, Vergès argued that the republic had no right to convict Barbie of anything given that French officers like the war hero General Jacques Massu had also engaged in torture and extrajudicial executions during the fight against the FLN. Vergès argued in impassioned speeches before the court that the main conflict motivating history was the struggle between the "Global North" vs. the "Global South", and that American policy in the Vietnam war and French policy during the Algerian war were the "true face" of the West. Vergès maintained to convict Barbie was a base act of hypocrisy for a French court as his actions were those of a typical Westerner, and therefore he could not be punished for doing merely other Westerners had done. Besides his tu quoque defense of arguing that French actions in the Algerian War were no different from Barbie's, Vergès spent much time attempting to prove the Resistance hero Jean Moulin had been betrayed by either the Communists, the Gaullists, or both, which led him to argue Barbie was less culpable than those who had betrayed Moulin. Vergès claimed Moulin's colleagues were "playing a double game" and all those in the Resistance "whether they were anti-Gaullists or anti-Communists forgot their duty to the Resistance because of partisan political passions". At one point, Vergès claimed that Moulin had actually wanted to be tortured to death and tipped off Barbie himself. Under French law, defense lawyers are entitled to use competing theories in defense of their clients, unlike the prosecution who must stick to only one line of argument. Barbie was not on trial for the torture and murder of Moulin as the statute of limitations in the Moulin case had expired, but instead on trial for crimes against humanity for his role in deporting Jews from Lyons in 1942-44, for which there was no statute of limitations. Barbie was on trial for his role in the arrest and deportation of 44 Jewish children from the Izieu orphanage on 6 April 1944. Of the 44 children, 42 were killed at Auschwitz.

Vergès seems to have brought in the Moulin case as part of his defense of Barbie as a strategy of historical obfuscation and confusion, as he argued that the truth about who betrayed Moulin to Barbie can never truly be answered. The implication of Vergès's argument was that other aspects of Barbie's life were likewise uncertain and unknowable, making the question of whatever Barbie committed crimes against humanity impossible to answer. Despite Vergès's best efforts at obfuscation and a tu quoque defense of comparing Barbie's actions to French actions in Algeria and American actions in Vietnam, the court found Barbie guilty of crimes against humanity, sentencing him to life imprisonment. Reviewing the film Hôtel Terminus: The Life and Times of Klaus Barbie, the film critic David Denby wrote the climax of the film was when the French filmmaker Marcel Ophüls pressed the "despicable" Vergès during an interview about his defense of Barbie, whom Denby wrote "...persists in pretending that Barbie is a victim of some sort". Vergès was paid to defend Barbie by Swiss Nazi financier François Genoud, who Vergès had met during the Algerian War due to their mutual support for the FLN.

In 1999 Vergès sued Amnesty International on behalf of the government of Togo. In 2001, on behalf of Idriss Déby, president of Chad, Omar Bongo, president of Gabon, and Denis Sassou-Nguesso, President of the Republic of the Congo, he sued François-Xavier Verschave for his book Noir silence denouncing the crimes of the Françafrique on the charges of "offense toward a foreign state leader", using an arcane 1881 law. The attorney general observed how this crime recalled the lese majesty crime; the court thus deemed it contrary to the European Convention on Human Rights, thus leading to Verschave's acquittal.

Khieu Samphan
In April 2008, former Khmer Rouge head of state Khieu Samphan, and old associate of Vergès, made his first appearance at Cambodia's genocide tribunal. Vergès represented Samphan, using the defence that, while Samphan has never denied that many people in Cambodia were killed, as head of state he was not directly responsible.

Saddam Hussein
After the US-led coalition forces invaded Iraq in March 2003 and deposed Saddam Hussein, many former leaders in the Baathist regime were arrested. In late 2003, Vergès offered to defend Hussein after he was approached by Sadam's nephew who was putting a legal team together. However, the Hussein family opted not to use Vergès.

In May 2008, Tariq Aziz assembled a team that included Vergès as well as a French-Lebanese and four Italian lawyers.

Personal life
Jacques Vergès was married twice. He had a son with his first wife with Karine. He would go on to marry his client Djamila Bouhired, having two children with her.

According to The Economist, "history was his first love, and he still sometimes dreamed of deciphering Etruscan or Linear A, unfolding the secrets of mysterious civilizations."

In 2002, he called former Serbian leader Slobodan Milošević "extremely likeable". In January 2008, he personally supported Tomislav Nikolić, nationalist leader of the Serbian Radical Party.

Death
Jacques Vergès died on 15 August 2013 of a heart attack in Paris at the age of 88. His funeral was attended by Roland Dumas and Dieudonné M'bala M'bala. Vergès is buried in the Montparnasse Cemetery.

In popular culture

 * In 1987 Vergès appeared on an episode of the live British discussion television programme After Dark alongside, among others, Eli Rosenbaum, Neal Ascherson, Philippe Daudy and Paul Oestreicher.
 * Vergès was portrayed by Nicolas Briançon in the 2010 French film Carlos.

Books written by Vergès (English language)
Note: Few works by Vergès have been translated into English.
 * Mervyn Jones, Ordeal : The Trial of Djamila Bouhired, Condemned to Death, Algiers, July 15th, 1957, 	London, Union of Democratic Control Publications, c. 1958, 1979. "With the complete text of the speech for the defence, by Jacques Vergès."

Books written by Vergès (French language)

 * Pour Djamila Bouhired, with Georges Arnaud, Éditions de Minuit, 1957.
 * Le droit et la colère, with Michel Zavrian & Maurice Courrégé, Éditions de Minuit, Paris, coll. « Documents », 1960.
 * Le crime de colonialisme. Colloque de Rome, 2, 3, 4, février 1962, in Revue Les Temps modernes (N°190), Gallimard, Paris, March 1962.
 * De la stratégie judiciaire, Éditions de Minuit, Paris, coll. « Documents », 1968.
 * Pour les fidayine. La résistance palestinienne, Éditions de Minuit, Paris, coll. « Documents », Paris, 1969.
 * Agenda, Paris, Simoen, 1979
 * Pour en finir avec Ponce Pilate, Le Pré aux clercs, 1983
 * La Face cachée du procès Barbie. Compte-rendu des débats de Ligoure (with Étienne Bloch), S. Tastet, coll. « Formule rompue », 1983
 * Beauté du crime, Plon, Paris 1988
 * Je défends Barbie (preface by Jean-Edern Hallier), Jean Picollec, Paris, coll. « Documents dossiers », 1988
 * Le Salaud lumineux, Michel Lafon, 1 January 1990
 * La Justice est un jeu, Éditions Albin Michel, 1992
 * Lettre ouverte à des amis algériens devenus tortionnaires, Éditions Albin Michel, coll. « Lettre ouverte », 1993
 * Mon Dieu pardonnez-leur, Michel Lafon, 1995
 * Intelligence avec l'ennemi, Michel Lafon, 1996
 * J'ai plus de souvenirs que si j'avais mille ans, Éditions 84, 1999
 * Nocturne. Poésie, Éditions Olbia, 2001 (ISBN 978-2719105368)
 * Avocat du diable, avocat de Dieu (entretiens avec Alain de La Morandais), Paris : Presses de la Renaissance, 2000 (ISBN 978-2-85616787-8)
 * Un procès de la barbarie à Brazzaville (co-author Dior Diagne), Jean Picollec, 2000
 * Noir silence, blancs mensonges, Jean Picollec, Paris, 2001
 * Les Sanguinaires : sept affaires célèbres, J'ai lu, 2001
 * Omar m'a tuer – histoire d'un crime, J'ai lu, 2001
 * L'Apartheid judiciaire, with Pierre Marie Gallois, L'Âge d'homme, Lausanne 2002
 * Le Suicide de la France, Olbia, 2002
 * Dictionnaire amoureux de la justice, Plon, coll. « Dictionnaire amoureux », 2002
 * Les Erreurs judiciaires, Presses universitaires de France – PUF, coll. « Que sais-je ? », 2002
 * Justice pour le peuple serbe, L'Âge d'Homme, coll. « Collection Objections », 2003
 * La Démocratie à visage obscène : le vrai catéchisme de George W. Bush, La Table ronde, 2004
 * Les Crimes d'État et comédie judiciaire, Plon, 2004
 * Passent les jours et passent les semaines : Journal de l'année 2003-2004, Plon, 2005
 * Jacques Vergès, l'anticolonialiste (conversations with Philippe Karim Felissi), Paris : le Félin, coll. « Histoire et sociétés », 2005 (ISBN 2-86645-584-3)
 * Malheur aux pauvres, Plon, 2006 (ISBN 978-2259199223)
 * Crimes contre l'humanité massacres en Côte d’Ivoire, Pharos, 276 p., avril 2006
 * Que mes guerres étaient belles !, Éditions du Rocher, 2007 (ISBN 978-2268060989)
 * Journal : La passion de défendre, Éditions du Rocher, 2008 (ISBN 978-2268065069)
 * Justice et littérature, Presses universitaires de France, coll. « Questions judiciaires », 2011 (ISBN 978-2130575382)
 * « Crimes et fraudes » en Côte d'Ivoire, Édite, 2011 (ISBN 978-2-84608-306-5)
 * Sarkozy sous BHL (with Roland Dumas), Éditions Pierre-Guillaume de Roux, 2011, 128 p.
 * De mon propre aveu, Éditions Pierre-Guillaume de Roux, 2013 (ISBN 978-2-36371-053-6)

Books and theses about Jacques Vergès (English language)

 * Jonathan Widell, Jacques Vergès, devil's advocate: a psychohistory of Vergès' judicial strategy, Doctor of Civil Law thesis, McGill University, 2012

Books and theses about Jacques Vergès (French language)

 * Emmanuelle Bosc, Jacques Vergès: la plaidoirie de l'indéfendable par la dénonciation de l'inavouable, sn, 1992
 * Robert Charvin, Jacques Vergès : un aristocrate de refus, Paris: Editions L'Harmattan, 2013
 * François Dessy, Jacques Vergès, l’ultime plaidoyer : conversations entre confrères avec maître François Dessy, Editions de l'Aube, 2014
 * Véronique Martin, Jacques Vergès envers et contre tous, Paris: Editions de Verneuil, 1999
 * Bernard Violet and Robert Jégaden, Vergès: le maître de l'ombre, Paris: Seuil, 2000

Filmography

 * L'Avocat de la terreur (Terror's Advocate), a 2007 documentary about Vergès, directed and narrated by Barbet Schroeder.
 * Nigel Kendall, Terror's Advocate, The Times, 13 September 2008
 * Jamie Kessler, Films in Brief: Terror's Advocate, Columbia Political Review, 2 December 2007

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/

title: Jacques Vergès


text:
Economic depression

An economic depression is a period of carried long-term economic downturn that is the result of lowered economic activity in one major or more national economies. Economic depression may be related to one specific country where there is some economic crisis that has worsened but most often reflexes historically the American Great Depression and similar economic status that may be recognized as existing at some country, several countries or even in many countries. It is often understood in economics that economic crisis and the following recession that may be named economic depression are part of economic cycles where the slowdown of the economy follows the economic growth and vice versa. It is a result of more severe economic problems or a downturn than the recession itself, which is a slowdown in economic activity over the course of the normal business cycle of growing economy.

Economic depressions may also be characterized by their length or duration, showing increases in unemployment, larger increases in unemployment or even abnormally large levels of unemployment (as with for example some problems in Japan in incorporating digital economy, that such technological difficult resulting in very large unemployment rates or lack of good social balance in employment among population, lesser revenues for businesses, or other economic difficulties, with having signs of financial crisis, that may also reflect on the work of banks, or may result in banking crisis (in various ways that may be for example unauthorized transformations of banks), and further the crisis in investment and credit; that further could reflect on innovation and new businesses investments lessening or even shrinking, or buyers dry up in recession and suppliers cut back on production and investment in technology, in financial crisis that may be more country defaults or debt problems, and further in feared businesses bankruptcies, and overall business slowdown. Other bad signs of economic depression could be significantly reduced amounts of trade and commerce (especially international trade), as well as in currency markets that maybe fluctuations or unexpected exchange rates with observed highly volatile currency value fluctuations (often due to relative currency devaluations). Other signs of depression are prices deflation, financial crises, stock market crash or even bank failures, or even specific behaviour of economic agents or population, that are also common or also non common elements of a depression that do not normally occur during a recession.

Definitions
In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions. Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output). Another proposed definition of depression includes two general rules:
 * 1) a decline in real GDP exceeding 10%, or
 * 2) a recession lasting 2 or more years.

There are also differences in the duration of depression across definitions. Some economists refer only to the period when economic activity is declining. The more common use, however, also encompasses the time until the economic activity has returned close to normal levels.

A recession is briefly defined as a period of declining economic activity spread across the economy (according to NBER). Under the first definition, each depression will always coincide with a recession, since the difference between a depression and a recession is the severity of the fall in economic activity. In other words, each depression is always a recession, sharing the same starting and ending dates and having the same duration.

Under the second definition, depressions and recessions will always be distinct events however, having the same starting dates. This definition of depression implies that a recession and a depression will have different ending dates and thus distinct durations. Under this definition, the length of depression will always be longer than that of the recession starting the same date.

A useful example is a difference in the chronology of the Great Depression in the U.S. under the view of alternative definitions. Using the second definition of depression, most economists refer to the Great Depression, as the period between 1929 and 1941. On the other hand, using the first definition, the depression that started in August 1929 lasted until March 1933. Note that NBER, which publishes the recession (instead of depression) dates for the U.S. economy, has identified two recessions during that period. The first between August 1929 and March 1933 and the second starting in May 1937 and ending in June 1938.

Terminology
Today the term "depression" is most often associated with the Great Depression of the 1930s, but the term had been in use long before then. Indeed, an early major American economic crisis, the Panic of 1819, was described by then-president James Monroe as "a depression", and the economic crisis immediately preceding the 1930s depression, the Depression of 1920–21, was referred to as a "depression" by president Calvin Coolidge.

However, in the 19th and early 20th centuries, financial crises were traditionally referred to as "panics", e.g., the 'major' Panic of 1907, and the 'minor' Panic of 1910–1911, though the 1929 crisis was more commonly called "The Crash", and the term "panic" has since fallen out of use. At the time of the Great Depression (of the 1930s), the phrase "The Great Depression" had already been used to refer to the period 1873–96 (in the United Kingdom), or more narrowly 1873–79 (in the United States), which has since been renamed the Long Depression.

Common use of the phrase "The Great Depression" for the 1930s crisis is most frequently attributed to British economist Lionel Robbins, whose 1934 book The Great Depression is credited with 'formalizing' the phrase, though US president Herbert Hoover is widely credited with having 'popularized' the term/phrase, informally referring to the downturn as a "depression", with such uses as "Economic depression cannot be cured by legislative action or executive pronouncement", (December 1930, Message to Congress) and "I need not recount to you that the world is passing through a great depression" (1931).

Occurrence
Due to the lack of an agreed definition and the strong negative associations, the characterization of any period as a "depression" is contentious. The term was frequently used for regional crises from the early 19th century until the 1930s, and for the more widespread crises of the 1870s and 1930s, but economic crises since 1945 have generally been referred to as "recessions", with the 1970s global crisis referred to as "stagflation", but not a depression. The only two eras commonly referred to at the current time as "depressions" are the 1870s and 1930s.

To some degree, this is simply a stylistic change, similar to the decline in the use of "panic" to refer to financial crises, but it does also reflect that the economic cycle – both in the United States and in most OECD countries – though not in all – has been more moderate since 1945.

There have been many periods of prolonged economic underperformance in particular countries/regions since 1945, detailed below, but terming these as "depressions" is controversial. The 2008–2009 economic cycle, which has comprised the most significant global crisis since the Great Depression, has at times been termed a depression, but this terminology is not widely used, with the episode instead being referred to by other terms, such as the "Great Recession".

The General Crisis of 1640
The largest depression of all time occurred during the General Crisis. The Ming Empire of China went bankrupt and the Stuart Monarchy fought a civil war on three fronts in Ireland, Scotland, and England. Thomas Hobbes, an English philosopher, created the first recorded explanation of the need for a universal Social Contract in his 1651 book Leviathan based on the general misery within society during this period.

Great depression of 1837
This depression is acknowledged to be a worse depression in the United States than the later Great Depression of the 1930s. This depression ended in the United States due to the California Gold Rush and its tenfold addition to the United States' gold reserves. As with most depressions, it was followed by a thirty-year period of a booming economy in the United States, which is now called the Second Industrial Revolution (of the 1850s).

Panic of 1837
The Panic of 1837 was an American financial crisis, built on a speculative real estate market. The bubble burst on 10 May 1837 in New York City, when every bank stopped payment in gold and silver coinage. The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels.

Long Depression

Starting with the adoption of the gold standard in Britain and the United States, the Long Depression (1873–1896) was indeed longer than what is now referred to as the Great Depression, but shallower in some sectors. Many who lived through it regarded it to have been worse than the 1930s depression at times. It was known as "the Great Depression" until the 1930s.

Great Depression
The Great Depression of the 1930s affected most national economies in the world. This depression is generally considered to have begun with the Wall Street Crash of 1929, and the crisis quickly spread to other national economies. Between 1929 and 1933, the gross national product of the United States decreased by 33% while the rate of unemployment increased to 25% (with industrial unemployment alone rising to approximately 35% – U.S. employment was still over 25% agricultural).

A long-term effect of the Great Depression was the departure of every major currency from the gold standard, although the initial impetus for this was World War II (see Bretton Woods Accord).

Greek depression
Beginning in 2009, Greece sank into a recession that, after two years, became a depression. The country saw an almost 20% drop in economic output, and unemployment soared to near 25%. Greece's high amounts of sovereign debt precipitated the crisis, and the poor performance of its economy after the introduction of severe austerity measures slowed the entire eurozone's recovery. Greece's troubles led to discussions about its departure from the eurozone.

Post-communism depression
The economic crisis in the 1990s that struck former members of the Soviet Union was almost twice as intense as the Great Depression in the countries of Western Europe and the United States in the 1930s. Average standards of living registered a catastrophic fall in the early 1990s in many parts of the former Eastern Bloc, most notably in post-Soviet states. Even before Russia's financial crisis of 1998, Russia's GDP was half of what it had been in the early 1990s. Some populations are still poorer today than they were in 1989 (e.g. Ukraine, Moldova, Serbia, Central Asia, Caucasus). The collapse of the Soviet planned economy and the transition to a market economy resulted in catastrophic declines in GDP of about 45% from 1990 to 1996 and poverty in the region had increased more than tenfold.

Finnish economists refer to the Finnish economic decline during and after the breakup of the Soviet Union (1989–1994) as a great depression (suuri lama). However, the depression was multicausal, with its severity compounded by a coincidence of multiple sudden external shocks, including loss of Soviet trade, the savings and loan crisis and early 1990s recession in the West, with the internal overheating that had been brewing throughout the 1980s. Liberalization had resulted in the so-called "casino economy". Persistent structural and monetary policy problems had not been solved, leaving the economy vulnerable to even mild external shocks. The depression had lasting effects: the Finnish markka was floated and was eventually replaced by the euro in 1999, ending decades of government control of the economy, but also high, persistent unemployment. Employment has never returned even close to the pre-crisis level.

Global
The late 1910s and early 1920s were marked by an economic depression that unraveled in particularly catastrophic circumstances: World War I and its aftermath led to a global nosedive in commodities that ruined many developing nations, while servicemen returning from the trenches found themselves with high unemployment as businesses failed, unable to transition into a peacetime economy. Also, the Spanish flu pandemic of 1918–20 brought economic activity to a standstill as even more people became incapacitated. Most developed countries had mostly recovered by 1921–22, however Germany saw its economy crippled until 1923–24 because of the hyperinflation crisis.

The 1973 oil crisis, coupled with the rising costs of maintenance of welfare state in most countries led to a recession between 1973 and 1975, followed by a period of almost minimal growth and rising inflation and unemployment. The 1980–82 recession marked the end of the period.

The savings & loans and the leveraged buyout crises led to a severe depression in mid-to-late 1989, causing a recession in 1990–91 (also fueled by the oil price crisis), whose effects lasted as late as 1994. This downturn is more remembered for its political effects: British Prime Minister Margaret Thatcher had to resign in November 1990; and while his approval ratings were above 60%, U.S. President George H. W. Bush lost the 1992 election to Bill Clinton because of the domestic malady marked by the depression and increasing urban decay.

In 2005, the persistent oil price rises and economic overheating caused by deregulation led to a gradual deterioration of the world economy with inflation and unemployment rising as growth slowed: The housing bubble in the U.S. burst in 2007, and the American economy slipped into a recession. This, in turn, provoked the failure of many prominent financial institutions throughout 2008, most notably Lehman Brothers, leading to the loss of millions of jobs.

Regional
Several Latin American countries had severe downturns in the 1980s: by the Kehoe and Prescott definition of a great depression as at least one year with output 20% below trend, Argentina, Brazil, Chile, Mexico, and Peru experienced great depressions in the 1980s, and Argentina experienced another between 1998 and 2002. South American countries fell once again into this in the early-to-mid 2010s.

This definition also includes the economic performance of New Zealand from 1974 to 1992 and Switzerland from 1973 to the present, although this designation for Switzerland has been controversial.

From 1980 to 2000, Sub-Saharan Africa broadly suffered a fall in absolute income levels.

title: Economic depression