Inflation and the Redistribution of Wealth Available to Purchase

The significance of inflation to any economic system results largely from the redistributive consequences induced by unanticipated, or imperfectly anticipated, price rises. Indeed if all economic agents possessed perfect foresight and all prices were perfectly flexible upwards then inflation would have no redistributive consequences and the accounting system could easily incorporate inflation into its measurement procedures. This would then solve the basic problem associated with the measurement of profit which arises because of the difficulty of estimating the future income earning potential of a particular asset. The implications for measurement procedures of a situation where perfect foresight exists was in fact considered by Professor Lerner as long ago as 1951 who concluded that “It would be somewhat more trouble and involve more complicated book‐keeping, but it is quite feasible.